May.29 - Europe's markets nudge new highs on expectations of further stimulus from the ECB. Could the rally be overdone? The central bank's vice president warns Reuters that market optimism may be stretching too far. Joanna Partridge reports.
Powering towards record heights. Germany's DAX now hovering close to the 10,000 level. It's a similar story across European equity markets - and Asian stocks hit a one-year high. It's partly down to liquidity, says Mike Gallagher from IDEAGlobal. SOUNDBITE: Mike Gallagher, Director of Research, IDEAGlobal, saying (English): "The Fed is not expected to tighten until summer 2015, maybe later, the ECB easing, Bank of Japan, liquidity. For us, we're looking at China and we think that the shake-out in the property market is bigger than the market currently anticipates, so we're looking keenly at the city price data. We think that can not only impact Asian sentiment, but could also spill over globally during the summer." The stock market surge has also caught the eye of the ECB. The central bank's Vice President Vitor Constancio warns investors' pursuit of more profit could be creating new price bubbles. And there could be spoilers on the way. SOUNDBITE: Vitor Constancio, Vice President, European Central Bank, saying (English): "Aggravation of geo-political risks, in Europe it's a case of Ukraine and Russia, and that could derail the situation and put a cloud on European assets, if the situation would aggravate. It's also the more significant deceleration of emerging markets." Talk of the possible break up of the euro zone now seems but a memory. The governments of countries like Italy and Greece may still be ridden with debt, but they're finding it easier and cheaper to borrow. The ECB's concerned about those record-high debt levels. And recent data is also a mixed picture - while euro zone economic sentiment improved in May, unemployment is on the rise again in France and Germany. There's also growing expectation the ECB will ease monetary policy in June - possibly with a package of measures. SOUNDBITE: Mike Gallagher, Director of Research, IDEAGlobal, saying (English): "10-15 basis points off both the refi and the deposit rate, and probably a 6-12 month LTRO to add liquidity in the short-term. Additionally the ECB is likely to give a green light to a targetted LTRO of 2-4 years which would be potentially announced at the June meeting, but not implemented until November after the stress tests." Global bond prices have surged, supported by expectations of ECB action. Some economists fear the central bank will only move modestly, and possibly months too late. Europeans - even those in Greece - are feeling more optimistic about the economy than they have for several months. It's unclear if the ECB's steps will be enough for the markets, and enough to give inflation a much-needed boost.