Market bounce due to short covering - Standard Chartered
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Market bounce due to short covering - Standard Chartered 14 October 2011London Reporter: Anna Reitman
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The recent market bounce is a consequence of short covering, says Standard Chartered in a recent report.
The approach of European policy makers is still fraught with significant execution risk and the recent focus on bank recapitalisation still deals with the symptoms rather than the cause though liquidity injections from central banks globally could lift the market temporarily, the bank writes.
The Bank of England announced a second round of so-called quantitative easing to the tune of £75 billion ($118 bn) while rumours of further bond buying from the Federal Reserve have been circulating in various media reports. Meanwhile the European Union will be increasing the leverage power of the EFSF after Slovakia ratified expansion plans.
"We prefer to use such a bounce to reduce illiquid risk positions rather than to add positions," Standard Chartered notes.
Still the bank does forecast that a new recession will be avoided though there is no doubt that the risk has risen.
"We expect confidence to pick up slowly as economic data continues to defy the worst fears and Europe gradually puts in place more measures to strengthen its banks and weak sovereigns," it writes.
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