Appetite for risk continues to drive equity market rally

The European equity market rally shows no signs of abating. Bulls are in the ascendency, with their appetite for risk sending stock indices to new highs for the year in September. Banks have led the charge, as a number of lenders reported excellent quarterly numbers.

There have been two main reasons for the rally. First, policy makers and central bankers have flooded the economy with liquidity in the form of quantitative easing; and second, a wave of positive economic data has bolstered the market’s upbeat mood. Banks have started to mend their balance sheets and deal with their capital structure. Over a trillion dollars has been written off in the process; a similar amount has been raised in new equity. At company level, cost-cutting measures have also produced the desired effect, and cash conservation has in many cases helped to strengthen highly i...