After a choppy run in the opening hours benchmarks gathered momentum after an executive of the European Central Bank (ECB) provided assurances that the debt crisis under control. This development combined with optimism that Greece would receive the bailout fund spurred an afternoon rally and markets ended modestly higher. While investors continued to react to the headlines in Europe, markets were initially choppy as Italy looked to be the next victim of debt woes.
The Dow Jones Industrial Average (DJIA) gained 0.7% to finish the day at 12,068.39. The Standard & Poor 500 (S&P 500) increased 0.6% and closed at 1,261.12. The tech-laden Nasdaq Composite Index edged up 0.3% and settled the day at 2,695.25. The fear-gauge CBOE Volatility Index (VIX) inched down by a percent to trade just below 30. Consolidated volumes on New York Stock Exchange (NYSE), American Stock Exchange and Nasdaq were 6.3 billion shares, lower than last year’s daily average of 8.47 billion. On the NYSE, advancers outpaced the decliners by a ratio of 1,679 to 1,362.
Over the weekend, embattled Greek Prime Minister George Papandreou and the leader of the opposition were in agreement over the formation of the interim government as the former leaves office to pave way for a new leader. This development may end the political crisis that had engendered a resolution to the debt crisis. While the interim government will prioritize passing the European rescue package, Eurozone leaders urged the coalition members to co-sign the vow of keeping alive economic reforms in exchange for which the nation would receive emergency funds.
Eurozone leader Jean-Claude Juncker said: “We asked the new Greek authorities to send a letter, co-signed by the two parties of the incoming government” to implement the economic reforms the previous government had agreed to as terms of the European Union (EU) and International Monetary Fund (IMF) bailout plans. EU’s Economic Affairs Commissioner Olli Rehn confirmed: “We will work with the new government once it has made a clear commitment…I believe that it is possible that the sixth tranche (of eight billion euros) can be disbursed in the course of November on condition that there is a clear and unequivocal commitment by the new government”.
Investors gained some respite with Greek looking en route to receiving its next installment. Last week the markets suffered a volatile run that also ended the benchmarks’ winning streak for four consecutive weeks. Fresh concerns had started to emerge from the European continent after George Papandreou called for a referendum on the European debt plan late on Monday pulling down the benchmarks. Such a move had the potential to jeopardize the entire global economy and experts believed that rejecting the bailout plan might lead to a “hard default” by Greece. Meanwhile, sources had told a media house that the European Union and International Monetary Fund will not be providing Greece with a EUR8 billion payment till the referendum takes place. However, later during the week, Greece reversed its call for a referendum on the European debt deal, bringing respite to nervous investors.
Yesterday, investors remained jittery initially, fearing Italy would become the latest addition to the list of debt-stricken nations in the Eurozone. 10-year borrowing costs soared as doubts emerged over the nation’s ability to manage its debt gained strength. Meanwhile, if the Italian Prime Minister Silvio Berlusconi loses support in the upcoming vote on budget reforms, he is expected to take the exit route.
Nonetheless, as mentioned earlier, encouraging developments soothed the nerves coupled with ECB executive Juergen Stark’s assurance that with “no need for further political actions”, the regions’ debt crisis might be under control “one or two years at the latest”.
Coming to the financial sector, Financial Select Sector SPDR (XLF) fund moved up 0.6% and stocks including Citigroup, Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), The Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS) gained 0.7%, 0.8%, 0.5%, and 1.2%, respectively.
