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US Fed's willingness to take further steps to stimulate the economy if needed

Thursday, May 17, 2012 3:36 AM GMT

Good morning ,

-Markets were less cautious today becoming  accustomed to Greece's new instability, with a fresh election date and a caretaker government put in place confirmed today. Some of the positive sentiment can also  be attributed to the US Fed's willingness to take further steps to stimulate the economy if needed. EUR/USD gained in the session testing  $1.2750

-China’s Shanghai Composite and Hong Kong’s Hang Seng have risen by 1.25% and 0.90%, followed by Japan’s Nikkei Stock Average and South Korea’s Kospi rise by 0.70% and 0.40%. Futures for the German DAX 30 and the French CAC 40 are signaling a higher open around 0.50% and 0.40%.

-Funds continue to flow out of Greek banks and there has been some reports that the ECB is not providing funding to Greek banks, however only Australia remained in negative territory. AUD/USD traded in a 50 pip range with the top around $0.9950. Former RBA member McKibbin said that the RBA will probably wait for Greek elections before cutting rates again and that a Greek exit from EU will mean rates will need to be pretty low.

-Overnight the Greeks officially named an interim prime minister and both Chancellor Merkel and ECB President Draghi reiterated their support for Greece staying in the euro zone. In addition, Merkel may have vaguely hinted on the possibility of more concessions for Greece in an interview with CNBC .

-On Wednesday, ECB President Mario Draghi told reporters in Frankfurt that, on the question of Greece leaving the euro, it was not for the ECB’s Governing Council to determine if Greece should or should not remain. According to Draghi, the ECB executive will “continue to comply with the mandate of keeping price stability over the medium term

-Italian and Spain 10-year yields reversed earlier climbs of some 20bps to move over 5bps lower on the session, while yields on German and US 10-year bonds remain not far off all-time lows. Gold has entered bear market territory after dropping for a fourth day, to trade around $1,540.

- Nikkei225 and the yen were give a boost after Japan recorded positive preliminary GDP growth in Q1. q/q GDP was 1.0% while annualized rose to 4.1% better than the 3.5% expected. Several Japanese press sources reported that Japan may raise its economic assessment tomorrow. Japan Economic minister Furukawa said the pace of deflation in Japan is moderating  , economy is continuing upward , Reconstruction demand and car subsidies lifted Q1 domestic demand , reiterates important for BOJ to support growth  . The economy is in a severe state, doing utmost to achieve stability and growth

-The FOMC minutes acknowledged the downside risks to the economy with some members indicating “additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough.” Naturally, any suggestion of further easing keeps the quantitative easing dream alive for investors which in-turn saw a brief period of US dollar weakness.

Have a nice day !

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