Divyang Shah, Senior IFR Strategist
We have had a relaxation of fiscal target deadlines for some countries and the ECB is intent on providing additional stimulus.
How policy makers use the time that has been bought for the financial and sovereign debt crisis will be key to the next phase of the crisis.
Instead of an end we should view the current environment as a pause, the longevity of which remains uncertain. Investors have priced in policy makers delivering and have been aided by a strong search for yield as money still leaks from money market funds.
The pendulum of market sentiment has swung from pessimism to optimism and this is the way markets behave in a crisis.
For those that remember the early years of the Japanese crisis will know how the pessimism-optimism waves were a feature of the investment landscape especially on the Nikkei.
We are currently still riding the optimistic wave and easing by other central banks is compensating for the lack of QE from the ECB.
The Fed might be mapping out a tapering path for QE but the BoJ is now taking over in helping to create liquidity much of which is likely to find a home on eurozone peripheral debt.
