The big question of the week is whether financial market gyrations continue, worsen or calm. European stocks are being called higher at the open.
Greece has been effectively shut out of the bond market. If it and others on the euro zone’s southern flank come under persistent market pressure, in a way that hasn’t happened for two years, the onus on the European Central Bank to act will grow and grow.
None of the countries likely to be in the firing line appear to qualify for the conditions attached to the ECB’s still-unused OMT bond-buying programme, the legality of which is under review by the European Court of Justice.
So full-on QE might be the only option to restore calm if the turmoil persists or worsens. We’re a long way from that yet and internal divisions within the ECB may rule it out altogether. Maybe that dawning realization, as the Federal Reserve prepares to turn the money taps off, has contributed to the unnerving of investors.
It is possible that if European bank stress tests – to be unveiled next Sunday – give a cleanish bill of health, credit and lending will start to flow again. But that will only happen if the demand for funds is there, and that is questionable, particularly at the rates banks are prepared to lend.