The European Central Bank (ECB) delivered according to expectations yesterday and gave rise to a global stock market rally. This after the ECB outlined a bond-buying scheme to help calm the euro zone’s debt crisis. Simultaneously firm US data fed speculation of a strong jobs report to be presented in the US later to-day.
The rally was broad both in Europe and US where three out of four listed stocks ended higher giving the Dow Jones its biggest daily gain in two months. Nasdaq rose to its highest level since 2000 ending at 3 135 with DOW at 13 292. Banks and high tech companies like Cisco, General Electric, Microsoft and Intel were the big winners. The positive trend continued in Asia where the South Asian Pacific Index, MSCI, climbed 1,3 percent. Reports that Chinese regulators had approved big infrastructure projects added to the positive market sentiment. The Shanghai index was up 2,3 and Hong Kong advanced 1,9 percent.
The ECB decision might be seen as a short term fix. It does not, however, solve the fundamental crisis problems Europe is confronted with. But markets have been given a relief brake. The ECB decision implies launching of a new and potentially unlimited bond-buying program. The program is focused on buying of bonds with a maximum 3 years maturity. Countries which have undertaken to implement approved fiscal austerity matters are eligible for the bond-buying program. ECB has thereby demonstrated willingness to confront the high interest rate levels on especially Spain and Italy’s bonds. The high bond interest rates have worsened and made the debt crisis for these countries even more unbearable. Increased risk appetite among investors shall probably be one of the important medium term results of the ECB measures.
The Euro which rose on hopes for ECB action prior to yesterday’s decision continues to marginally strengthen both in relation to USD and other currencies in early Asian trading. At present Euro/USD is at 1.2638. Greater risk appetite has weakened the Japanese Yen. USD/JPY is at 78,925. Oil prices have fallen back after skyrocketing prior to the ECB-decision. Brent crude is trading close to 114 with NYMEX in the interval between 95 and 96. Gold and silver prices are also falling back after yesterday’s high on 1705 and 32, 90 at present trading at respectively 1693 and 32,20.
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