Euphoria Pushes US Markets Upwards
U.S. share markets climbed on Tuesday, on reports saying the Greek government was close to agreeing on budget measures making them eligible for additional international rescue money.
Also today, Fed Chief Bernanke reiterated his worries about the U.S. economy, signaling last week’s jobs report had
not swayed the central bank from its commitment to keeping rates ultralow. The Dow Jones rose 33.07 points, or 0.3%, to 12,878.20, its highest close since May 2008. The S&P improved by 2.72 points, or 0.2%, to 1,347.05. The NASDAQ was up by 2.09 points, or 0.1%, to 2,904.08.
Stocks opened lower amid concerns that Greek politicians could not reach agreementsneeded to receive additional bailout money and avoid a default.
Later in the day, new was reported by the Financial Times stating, Papademos has submitted a “final draft” of the terms of the bailout to party leaders, who are set to decide on the measures later Tuesday. (Which has now been postponed until Wednesday?)
In a signs of optimism or euphoria, the euro skyrocketed against the U.S. dollar to the highest level since early December.
Prime Minister Lucas Papademos has finalized a draft of reforms including job and salary cuts, pension reforms and other policies to reduce public spending. A meeting of top leaders from Greece’s main political parties which was scheduled for Tuesday evening has been pushed back to Wednesday, perhaps signaling problems.
Reaching final agreements in Athens is only a small step, a step which should have been taken weeks ago. As days pass, it is becoming much to close for comfort. There still is not a final agreement with creditors or the IIF, although they have reached an understanding, final agreements are still not finalized.
There are many more hurdles that have to be crossed in a very short space of time. These negotiations and talks have last almost two years and now we are down to days and still nothing has been completed. Greece has finished implementing the initial budget cuts they promised to get the initial bailout funds and there is no security to show that they will complete the additional budget reductions. This is very disturbing to both the Germany’s Chancellor Merkel and French President Sarkozy.
Once the Greek government has officially agreed as a whole to support and implement the budget cuts, the IIF has to accept the final agreement, which then has to be presented and reviewed by the EU, the ECB and the IMF. Although they have all been involved in the negotiations, the final package needs to be reviewed.
There are fears that Merkel and Sarkozy are going to demand oversight or additional pledges and promises from the Greek Government to implement budget reductions and to control future spending and budgets. Germany recently noted that they would like to see an EU commissioner appointed to oversee Greek finances with the authority to over certain spending in Greece. A story today, mentioned that the IIF might be asking for a special fund and account to secure future bonds and payments.
At this point nothing is done until it is done.
US markets have over reacted to the news, investors worldwide are over reacting. Just because a deal is done, does not improve the economy, and does not end the euro debt crisis and does not increase growth and does not provide jobs or increase exports or manufacturing, it simply stops a disaster in Greece.
Yes the markets should be less worried, but this does not justify the jump in the Dow or the surge in the euro. This is simply a small crisis among many crises that we will need to face. For the US, yes, it was good news last week, with a drop in unemployment and an increase in jobs, but one report for one month Is just a blimp, a sign of hope, nothing more.
Originally posted here
