The major indices in the U.S. had one of their best weeks in the past two years with the S&P rising over 4% and the Nasdaq over 5%. Positive earnings reported from firms have taken the forefront of markets’ minds from previous concerns about liquidity and a strong dollar weighing down on growth.
European markets also recovered this week. The ECB has started its quantitative easing measures, starting with covered bonds in France. Rumors have circulated that the ECB may even move to the corporate bond market to try and stimulate the economy. Mid-week data on European PMI came in better than expected.
On Sunday the ECB will release the results of its stress tests on 130 major banks. Early reports are that 25 banks have failed, including banks in Greece, Cyprus and Portugal. No banks from France or Germany are believed to have failed, assuaging markets.
News from Asia was mixed this week. China reported growth of 7.3%, below government targets but above expectations. Underlying manufacturing data also released has proven contradictory. China also announced further monetary easing measures for major banks. In Japan, official economic forecasts were downgraded and the government issued bonds with negative yields. The Bank of Japan meanwhile is debating purchasing long-term bonds as the supply of short-term debt is scarce.
The Bank of England is becoming more skeptical about the country’s growth trajectory. England was expected to be the first country to normalize monetary policies but the growth outlook may change the central bank’s approach.
William Dudley, of the New York Federal Reserve, and Daniel Tarullo, from the Board of Governors, both issued aggressive statements to the banking industry this week, warning them to reform or risk being broken up.
China launched the Asian Infrastructure Investment Bank this week, a rival to the Asian Development bank and the World Bank. China feels the two long-standing institutions are too heavily influenced by the U.S. and Japan and do not take in input from other nations.