U.S. GDP Growth Accelerates to 2.5%; S&P 500 Index Jumps 2%

Nichole Harper
27 Oct, 2011
New York City

U.S. stocks soared after European leaders agreed after a marathon ten hours of negotiations to restructure Greek debt. U.S. economy in the third quarter expanded at 2.5%, faster than the 1.3% in the second quarter. ExxonMobil third quarter revenues increased 32% and net soared 41% to $10.3 billon.

[R]12:00 PM New York – U.S. stocks soared after European leaders agreed a last minute agreement to restructure Greek debt. U.S. economy in the third quarter expanded at 2.5%, faster than the 1.3% in the second quarter. ExxonMobil said third quarter revenues increased 32% and net soared 41% to $10.33 billion.[/R]

Stocks in New York trading surged and market indexes gained more than 2% after European leaders agreed on debt restructuring and erect a wall to contain financial contagion from spreading to France and Italy.

The difficult agreement was stitched after ten hours of marathon session lasting in the wee hours late last night. German Chancellor Angela Merkel offered “last word” proposal to the banking industry representative Charles Dallara to accept 50% reduction in Greek debt of face a total meltdown.

The proposal was accepted swiftly by the association of banks but only after Greece conceded to offer cash incentives to banks. Greece also said banks will be temporarily nationalized to facilitate the debt exchange.

However, European leaders struggled to come up with specific details in how the rescue fund will be leveraged to €1 trillion.

European Indexes Soar 5%

European indexes surged after leader agreed on a plan to restructure Greek debt, ask banks to recapitalize and set the target to increase rescue fund to €1 trillion.

French President Nicholas Sarkozy announced the agreement after ten hours of marathon negotiation after mid-night with bankers, heads of states and policy makers.

Sarkozy said banks have agreed on a “voluntary” 50% reduction in Greek debt to €102 billion and allow Greece to keep its debt burden to 120% of its GDP in the rest of the decade.

Greece will also offer €30 billion cash incentive to banks to soften the blow of debt cut and the rest of €70 billion will be exchanged for 30-year bond for 6%.

The €30 billion assistance will be given to local banks that hold between €45 billion and €50 billion. Greek companies, banks and investors hold in all €80 billion of Greek bonds.

The agreement was also reached on asking banks to recapitalize by tapping additional €106 billion of new capital. Three largest French banks said they do not need help from the government to raise capital.

However, investors are still not convinced how the European Union will leverage its rescue fund from the current €440 billion to €1 trillion. French President Sarkozy is expected urge China and Japan to participate in the fund.

The euro surged to $1.401 in trading on the agreement.

In Paris, the CAC-40 Index added 170.23 or 5.4% to 3,393.85 and in Frankfurt the DAX Index edged higher 299.41 or 5% to 6,315.48.

The indexes in Stockholm added 4%, in Madrid and Milan edged higher 4.5% and in Zurich gained 2.2%. The index in Athens rose 3.3% and in UK gained 2.9%.

Yields on German bonds increased 11 basis points to 2.16% and Spanish 10-year Treasury yield fell 15 basis points to 3.14% and Italian 10-year bond yield declined 10 basis points to 5.83%, after the release of the agreement.

U.S. GDP Expands at 2.5%

The Commerce Department said the U.S. economy in the third quarter expanded at 2.5% in its first assessment compared to 1.3% growth in the second quarter.

The economy has been sending mixed signals as retail and auto sales are rising but not adding new jobs at a brisk pace to make a dent in the 9% unemployment rate.

Thai Floods Prompt Global Auto Production Slowdown

Toyota Motor decided to keep three factories closed in Thailand for another week and said parts shortages will affect the production in Malaysia, Vietnam, Philippines and also in Indiana, Kentucky and West Virginia in the U.S. and in Ontario.

Floods in Bangkok are expected to swell in the next three days as rain pours, water levels rise and high tide slow down the water flow in the city’s river Chao Phraya. Governor Sukhumbhand Paribatra urged residents to “evacuate” and said “this is the first time I am asking you to leave.”

Two days ago, Thai Prime Minister Yingluck Shinawatra declared five-day holiday in Bangkok so that residents can cope with the flood waters and Education Ministry closed schools until November 7.

Prime Minster Shinawatra said it may take as long as one month for water to recede if one of the dykes protecting Bangkok breaks and water level surges to 1.5 meter.

Stock Movers

P F Chang’s China Bistro ((PFCB)) declined 2% to $29.55 after the casual dining restaurant chain operator reported third quarter revenues declined to $300.6 million from $308.4 million a year ago. Net income declined to $6.3 million from $10.5 million a year ago and earnings per share declined to 29 cents from 45 cents a year ago.

Same store sales declined 3% in October and menu prices increased between 1% and 2% in the third quarter at Bistro locations and between 2% and 3% at Pei Wei locations.

The chain kept the full year earnings between $1.60 and $1.70 a share and expects to open between 3 and 5 new Bistro restaurants and 16 to 20 new Pei Wei restaurants.

Franklin Resources, Inc ((BEN)) soared 6.5% to $107.36 after the money manager reported net income in fiscal fourth quarter ending in September increased to $416 million from $372.9 million and earnings per share increased to $1.88 from $1.65 a year ago quarter.

Total assets under management increased 2% to $659.9 billion and investors poured net new funds of $3.1 billion in the quarter.

Exxon Mobil ((XOM)) rose 20 cents to $81.27 after the largest oil explorer said third quarter profit increased 41% to $10.33 billion from $7.35 billion a year ago. Earnings per share increased to $2.13 from $1.44 a year ago quarter.

Oil and natural gas production declined 4% to 4.28 million barrels equivalent per day in the latest quarter. Net profit in the exploration business increased 54% to $8.39 billion and in the refining business jumped 36% to $1 billion.

Revenues in the quarter jumped 31.5% to $125.33 billion and spent $8.6 billion in capital spending in the quarter totalling $113.56 billion in the first nine months in the year.

Crude oil prices increased 18% in the quarter a year ago as prices of immediate month delivery futures rose to $90 in New York.