FTSE starts higher again marking a third day of gains Central Bank action eyed

The FTSE 100 started the new trading week higher by 66 points or 1.18% on Monday as investors eyed a week where three major Central Banks announce their respective interest rate decisions, which could see more stimulus and further measures announced to combat the eurozone debt crisis engulfing both Italy and Spain.

The FTSE 100 has rallied over 3.5% in the last three trading sessions. 5720 remains an important upside target for the UK Index to break above before it can target the 5900 and 6000 levels respectively. A test at the 5700 level saw the FTSE immediately fall away today and so the 5700-5720 levels are going to be important ones to watch over the next few trading days.

The moves we have seen in the last three trading sessions has been a direct consequence of some of the toughest and most affirmative rhetoric issued by Mario Draghi, the ECB President, Angela Merkel and Francois Hollande to protect the solidarity of the euro. Draghi last week claimed that the ECB would do “whatever it takes to preserve the Euro” and Merkel also claimed alongside Hollande that “we will do anything to protect the Euro.”

Investors have lapped up these claims and the timing of them thrusts the new trading week into greater levels of importance for the near term outlook for European stocks. One cannot ignore the timing of the comments last week. The recent rhetoric has instilled new levels of optimism into the market that the ECB will act this week when it announced its ECB rate decision on Thursday. Whilst another rate cut is not currently expected by the majority of traders, many do want to hear how the ECB plans to cool Spanish and Italian bond yields, prop up bank liquidity and of any plans to give the ESM a banking license.

But agreeing to new measures within the euro camp will be a difficult job, as previous EU Summits testify to, and only Friday did the Bundesbank make clear that it remained against the idea of giving the ESM a banking license.

In this sense, we could see a market that is extremely news driven this week.

First up to the podium of Central Banks this week however is the Federal Reserve, who starts a two day policy meeting tomorrow. The Bank of England announces its own monetary decision on Thursday, where no change is expected.

The start to trading has seen financial stocks lead the way, marking a continuation of the previous 48hrs worth of trading. The FTSE 350 banking sector rose 2%, with shares of Barclays continuing to recover after Fridays better than expected results.