A NEW self-assurance has spread through financial markets. The MSCI index of global stocks is up by more than 7% since the start of the year and by almost 20% since early October. Bond yields in Spain and Italy, the two biggest of Europe’s embattled peripheral economies, have fallen to their lowest levels in three months. Greece’s fraught negotiations with its creditors have dulled the rally this week—but only a bit. Given that a huge sovereign default could occur in scarcely more than a month, there is strangely little nervousness.
Why the exuberance? In part it reflects genuinely good economic news, especially in America, where January’s far stronger-than-expected employment figures, along with upbeat statistics from manufacturing and services, suggest that recovery in the world’s biggest economy really is gaining momentum (see article). The cheerier mood is also based on a belief that the European Central Bank (ECB) has vanquished the worst dangers for the single currency with its massive provision of three-year liquidity to the region’s banks. Calamities that seemed all too plausible a couple of months ago, such as the collapse of a big European bank or a series of failed bond auctions leading to the imminent fracturing of the single currency itself, now seem highly unlikely.
In addition, the market rally is a natural reaction to the fact that central bankers have doubled down on their commitment to cheap money. The Federal Reserve recently made clear that it does not expect to raise interest rates until the end of 2014, much later than expected. The Bank of England, which was due to meet on February 9th after The Economist went to press, is likely to launch another round of bond-buying. The ECB, which meets the same day, may cut rates again soon.
Will the good news last? Recent history suggests caution. A year ago America’s economy was widely expected to accelerate, boosted by the Fed’s second round of bond-buying. Instead growth slumped, pulled down by a combination of outside shocks (higher oil prices as a result of the Arab spring, disrupted supply chains after the Japanese earthquake) and policy errors at home and abroad (wrangling over America’s debt ceiling and the ever-deepening euro mess).
sumber : http://www.economist.com/node/21547242
