Wall Street Surge Follows European Decisions; Bond Market Sceptical

Bikram Pandey
27 Oct, 2011
New York City

Stocks, commodities and euro soared after European leaders agreed to restructure Greek bonds and banks were asked to raise capital and meet higher reserve requirements. The euro gained, oil soared 4%, gold added 1% and copper surged 7%. U.S. bond yields rose and European yields traded near highs.

[R]4:00 PM New York – Stocks, commodities and currencies soared after European leaders agreed to restructure Greek bonds and banks were asked to raise capital and meet higher reserve requirements. The euro gained, oil soared 4% and gold added 1% and copper surged 7%. U.S. bond yields rose and yields in Europe traded near recent highs.[/R]

Investors reacted differently to the news from euro zone and better than expected economic growth in the U.S. Stocks and commodities surged, bond market was sceptical and currency market rejoiced in the optimism.

U.S. stocks soared after European leaders agreed after a marathon ten hours of negotiations to restructure Greek debt. Financials led the gainers as banks and brokerage firms soared between 7% and 20% in New York and Europe. Market indexes in Europe soared 5% or more.

The enthusiasm in the currency market lifted the euro to $1.422 and drove the yen to near the high last seen 25 years ago after European leaders forged an agreement to restructure Greek debt and ask banks to recapitalize and look for overseas investors to bolster European rescue fund by a factor of four.

The bank recapitalization plan will require 70 largest European banks to raise capital by €106 billion before mid-2012 to increase their reserve ratio to 9% and will also require mark to market the sovereign bond portfolio. European banks will also get government guarantees to issue long term bonds.

Bank stocks soared on the clarity on how much losses are linked to the Greek bond restructuring and because the restructuring is voluntary it will not be deemed as a “credit event” that will not trigger payment on credit default swaps.

French banks have been under pressure but Bank of France Governor Christian Noyer said banks in the region can manage 50% loss in Greek bonds. Few banks in Greece need new capital but none of the three banks controlled by French banks in the nation need new capital.

U.S. economy in the third quarter expanded at 2.5%, faster than the 1.3% growth in the second quarter. ExxonMobil said third quarter revenues increased 32% and net soared 41% to $10.33 billion.

In corporate earnings, Akamai Technologies surged 15% after quarterly revenues and earnings rose more than expected. Visa Inc reported 14% higher net as payment volume processed increased. ExxonMobil earnings surged after crude oil prices rose 18% from a year ago. PF Chang’s China Bistro struggled with earnings.

The benchmark index in Japan soared 2% on the European leaders’ agreement on debt restructuring and bank recapitalization plan. Thai floods prompt more companies to cut production estimate and property insurers face more losses. Namco Bandai and Osaka Titanium Technologies surged on positive outlook.

Australian stocks surged in a truncated trading session after the exchange struggled with technology. Woolworths reported first quarter sales increased 4.9% and cited continued weak environment. National Australia Bank reported higher net on lower bad debt charges.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond closed up to 2.39% and 30-year bond rose to 3.45%.

The U.S. dollar decreased to $1.421 to one euro and closed lower against the Japanese yen to 75.89 yen.

Immediate delivery futures of Texas crude oil increased $3.81 to $94.01 a barrel and futures of natural gas decreased 0.06 cents to $3.52 per mbtu and gasoline prices rose 8.48 cents to 273.10 cents a gallon.

In metals trading, copper increased 22.70 cents to $3.71 per pound, gold added $19.80 to $1,743.30 per ounce and silver rose $1.92 to $35.23.