Thursday, October 27, 2011

Global Stocks in Love with European Rescue Plan

If yesterday's gains were the equivalent of irrational exuberance, then today's stock risings around the world must be something akin to unconditional love for all things European, Euro, Eurozone or Euro-centric.

In the pre-dawn hours of Thursday, the meeting of leaders from the 17 nations comprising the the Eurozone - the nations employing the Euro as official currency - within the 27-nation European Union, broke from their marathon meeting and outlined a bold, yet still unfinished plan to stave off the collapse of Greece, keep key European banks solvent and expand the European Financial Stability Facility (yes, we know, you were wondering what EFSF stood for) to Euro 1 trillion ($1.41 trillion).

Greek debt-issuers, denominated mostly by major European banks, would be required to write down bonds by 50% (a haircut, as it is known), a proposal that many of the prominent banks had wished to avoid - and still may fight - was pushed through by the Eurozone leaders as a necessary action to keep the government of Greece from default and insolvency. The total amount to be written down on Greek debt came roughly to Euro 100 billion ($141 billion), though analysts debated the actual figure, most arguing the the recapitalization of the banks must be a much higher number.

Despite the lack of clarity over the details of the plan, stock indices around the world exploded to the upside on the news. The Hang Seng gained 3.26%, with other markets in the region all positive, though it was the European bourses themselves which registered the largest gains by far.

In Germany, the DAX finished more than 5% higher, the French CAC-40 soared 6.28% and Austria's ATX surged 6.11%. Other european markets registered significant gains.

While the European markets were notching higher through their afternoon, US futures were indication an explosive open with Dow futures in the green to the tune of - at times - more than 300 points. When US markets opened, the response was quick and certain, with all of the major indices higher in the early going, the NASDAQ setting the pace all day and finishing with a phenomenal gain of nearly 88 points and the S&P outdoing it with a 3.43% hike by days' end.

That Europe's long-awaited plan will proceed without hitches is uncertain, though there are sure to be bumps along the road. For now, however, the global stock market reaction appears to be showing broad approval and unequivocal support.

Buoying the euphoric sentiment in the US was the initial reading of US 3rd quarter GDP, which came in as expected, showing a growth rate of 2.5%, when skeptics of the somewhat-dormant US recovery had predicted much lower numbers, some believing that America was heading back into recession. With the holiday season fast approaching, chances for a double-dip recession have by now been effectively squashed.

Not only were stocks radically higher, with the Dow piercing the 12,000 threshold for the first time since August 1, the index on pace for it's best October ever, but commodities were also up sharply across the board, with oil, gold, silver, corn, soybean and wheat futures all posting superlative gains.

At the end of the day, the markets put on a show of global confidence not seen in some time, registering some of the best gains since the 2008-09 US financial catastrophe. What remains to be seen is whether the European leaders can actually implement the plan and keep the global economy churning. For today, at least, the consensus seems to be primed for their best efforts.

Dow 12,208.55, +339.51 (2.86%)
NASDAQ 2,738.63, +87.96 (3.32%)
S&P 500 1,284.59, +42.59 (3.43%)
NYSE Composite 7,813.99, +307.84 (4.10%)
NASDAQ Volume 2,851,696,750
NYSE Volume 6,600,709,000
Combined NYSE & NASDAQ Advance - Decline: 4956-827
Combined NYSE & NASDAQ New highs - New lows: 282-31
WTI crude oil: 93.96, +3.76
Gold: 1,747.70, +24.20
Silver: 35.11, +1.80

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