The Nikkei 225 hit its highest level of the last two months as investors enjoyed the bounce provided by the Eurozone summit.
The fresh raft of measures announced by European leaders sent stocks surging as investors finally began to eye a respite from the ongoing market volatility. The FTSE, Dax and Cac all sped to recent highs, and held their momentum through the early stages of today’s trading.
Such continuation is in sharp contrast to immediate reactions to recent Eurozone measures. Last month’s €100 billion bailout to the Spanish financial system actually harmed stock prices across Europe’s main indices.
In addition, there is increasing evidence that Asian stocks are closely tied to events in the Eurozone. The Nikkei tumbled from peaks of above 10,000 down to a trough just below the 8,300 mark in just 2 months, a remarkable 17% fall. Unsurprisingly, the months of April and May during which the spiral occurred were characterised by Greek political turbulence, and its wider implications for the future of the Euro, and analysts have been quick to realise the extent to which a Greek exit could have ramifications across the global financial system.
Reinforcing this trend, the Euro/Yen exchange rate has depreciated by around 10% over the period.
Nevertheless, after the positive outcome of the latest summit over the weekend, stocks globally have enjoyed a brief rally. Although it remains early, indices across the world, including the Nikkei, have rallied.
Given the protracted resurgence of the global economy after the financial crash of 2008, such a rally could spark the beginning of a prolonged bull market.
Markets remain in a position to take up spare capacity – the Nikkei remains depressed by 1000 basis points in comparison with its 2012 high at the end of March, the Dow Jones Industrial Average remains 1500 basis points below its pre-crash high.
Whichever way investors decide to call it in the coming days, one thing is certain – global financial markets remain heavily intertwined, even after the turbulence of the last 5 years.