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MORNING BID EUROPE - Markets dismiss worries as risk rally continues

MORNING BID EUROPE - Markets dismiss worries as risk rally continues

Ankur Banerjee gives us a look at what the future holds for European and global markets

Worries about credit risk are now a distant memory. Investors feel optimistic, betting on the Fed cutting rates next week, and that earnings will be good.

This - call it optimism - is what has driven stocks in Asia-Pacific to new highs, with Japan's Nikkei coming just short of a milestone 50,000 points.

Apple-led gains in U.S. technology shares have led to strong gains overnight for tech stocks from Taiwan and South Korea.

Sanae Takaichi, a conservative hardliner, is expected to be elected as Japan's 1st female Prime Minister later on Tuesday. Her appointment has continued to drive Japanese shares higher in hopes that her stimulus plans will benefit equities.

Local media reports that Takaichi, an acolyte to former Prime Minister Shinzo Abe will appoint Satsuki Katayama to the position of Finance Chief. Katayama, who has said that the real value of the yen is closer to 120 or 130 per dollar, may not be good news for yen bulls. The last time the yen reached 151.07 was in 2007.

In Europe, there is not much on the calendar in terms of economic events. This could be good for risk assets because they can take their cues from the Federal Reserve's lowering interest rates. The traders are predicting a 98.3% probability of a rate cut by 25 basis points next week.

Investors are also comforted by the recent comments made by U.S. president Donald Trump about China. Trump has said he hopes to reach a fair deal with Chinese President Xi Jinping, as he prepares for a meeting with Xi at an economic conference next week in South Korea.

The news next week will be dominated by the central bank meetings taking place in the U.S., Japan and the meeting between Trump & Xi.

After a volatile week in which fears over credit risk impacted sentiment, traders will be focusing on regional bank reports as well.

Investors were largely satisfied with the earnings reported by some companies on Monday.

The following are the key developments that may influence Tuesday's markets:

Earnings: Unicredit, L'Oreal

(source: Reuters)