Greek Bailout Lifts Gold, Silver; Oil Surges to 9-month High

Bikram Pandey
21 Feb, 2012
New York City

After another round of marathons talks, European leaders approved the second tranche of Greek bailout but with stricter conditions and supervisions. Indexes in New York traded sideways and oil jumped to a nine-month high and the Dow, once widely followed, crossed the high last seen in 2008.

[R]4:45 PM New York – After another round of marathons talks, European leaders approved the second tranche of Greek bailout but with stricter conditions and supervisions. Indexes in New York traded sideways and oil jumped to a nine-month high and the Dow, once widely followed, crossed the high last seen in 2008.[/R]

The U.S. indexes traded sideways as investors took some profit after the much awaited news on the Greek agreement. Oil and gold shot up.

Investors digested the details of the agreement as international lenders and European politicians worked out a historic agreement that brought together 17 euro zone nations and central banks, the European Central Bank and the International Monetary Fund.

The marathon talks ended early this morning after leaders approved the release of second bailout to Greece but with strict permanent supervision and conditions that will wipe out nearly one third of the Greek sovereign debt.

The agreement was once unthinkable and according to several prominent skeptical investors in U.S. and UK, the Greek contagion could have started the demise of the euro and the euro zone.

Despite the persistent criticism from the UK and U.S. investors, European political will triumphed in the euro zone and the euro has retained its strength against the dollar, the UK pound and many other international currencies.

But, at least the talks of the euro falling apart, one the constant drum beat from the media in New York and in London has quieted for now.

However, the dollar has lost more than 50% against several currencies in the last ten years.

Make no mistakes, Greece is not out of the woods yet and the euro zone may confront similar situation again, soon, with Greece or other smaller struggling member nations. Greece’s economy is still weak and falling, confidence has not returned and Greeks are still staying away from depositing in local banks.

At least for now with the second bail out agreement, investors are likely to support Greek longer term bond offering and the recent injection of €500 billion from the European Central Bank has also added a large amount of liquidity in the financial system.

In anticipation of the Greek bailout and improving economic data from the U.S., broader indexes in New York have jumped more than 24% in the last seven months. The oldest index, though not widely followed by the money managers, the Dow Jones Industrial Average that tracks 30 large companies crossed 13,000 for the first time since May 20, 2008.

Stocks in New York were rising in the morning after a 3-day weekend and the news on the merger front also helped the market sentiment. Canada-based Fortis agreed to acquire CH Energy for $1.5 billion. URS agreed to purchase Flint Energy Services for C$1.25 billion.

In earnings news, Kraft Foods fourth quarter net surged 54% to $830 million and Medtronic third quarter net increased 12%. Macy’s fourth quarter net increased to $745 million. Home Depot fourth quarter net soared 32% to $774 million. Wal-Mart Stores quarterly net decreased 14.7% to $5.16 billion.

Across the Atlantic, Spain auctioned €2.5 billion worth of treasury bills at lower yields. Swiss trade surplus fell but money supply growth grew in January. The Danish and Dutch sentiment improved in February. Bulgarian unemployment rate increased in the fourth quarter.

The UK indexes dropped from the seven-month high as investors digest the details of Greek agreement with troika. The UK public sector net borrowing needs declined in January. Croda International fiscal 2011 sales rose 6.6%.

Stocks in Japan rested after rising for seven sessions in a row. Mazda Corp plunged 10% after the company is looking to raise capital from stock and debt sale. DeNA Corp gained after it struck an agreement to expand in Korea.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond increased to 2.05% and 30-year bond advanced to 3.19%.

The U.S. dollar traded up 0.06% to $1.323 to one euro and edged up against the Japanese yen at 79.70.

Immediate delivery futures of Texas crude oil increased $2.26 to $105.50 a barrel and Brent crude rose $1.05 to $121.20. Oil in New York and London traded at nine-month high.

Futures of natural gas fell 5 cents to $2.63 per mbtu and gasoline price increased 4.9 cents to 306.45 cents a gallon in New York trading.

In metals trading, copper increased 11.20 cents to $3.82 per pound, gold decreased $32.50 to $1,758.40 per ounce and silver increased $1.18 cents to $34.40.