European Leaders Pledge

Bikram Pandey
22 Jun, 2012
New York City

U.S. indexes rebounded as leaders of Germany, France, Italy and Spain pledged stimulus package of as much as

[R]4:00 PM New York – U.S. indexes rebounded as leaders of Germany, France, Italy and Spain pledged stimulus package of as much as €130 billion and the European Central Bank said it will accept wider collateral to facilitate more lending in struggling nations. Oil and copper gained.[/R]

U.S. indexes rebounded after European leaders agreed to commit more capital to stimulate the economies in the region and the central bank offered to accept wider collateral to offer cheaper loans to banks.

Leaders of Germany, France, Italy and Spain pledged to work together and provide as much as €130 billion and acknowledged the seriousness of the crisis in the union.

The leaders also said that they will offer more comprehensive vision of the fiscal and monetary union and with an objective to “refocus on growth through investments and the job creation.”

However, as usual, few concrete details were available and most sovereign bonds are likely to face rising speculative attacks.

Separately, the head of the International Monetary Fund warned leaders that the region is under “acute stress” and pressured leaders to issue euro bonds at the earliest. Germany has consistently opposed to the region wide bonds because it will increase its borrowing costs and German taxpayers will be responsible for other nations’ debts.

The four leaders at the Rome meeting also agreed to propose a financial transaction tax of 0.1% on banks for the value of securities and 0.01% on derivatives contracts collected to fund future bank bailouts. However, only 10 of the 27 members of the European Union agreed with the proposal at a meeting in Luxembourg.

In addition, the European Central Bank relaxed the collateral it accepted from banks to offer loans at 1%. The central bank said it will accept auto loans and other asset backed securities from banks in addition to sovereign bonds in a move that will help banks in Greece, Spain, Italy and Ireland.

For the week, the S&P 500 index declined 0.5% and the Nasdaq rose 0.7%.

The European indexes slumped after German business confidence fell to a two-year low in June. German business confidence fell more than estimated and the euro area consumer confidence declined in June. Retail sales in Denmark improved in May. Consumer spending in the Netherlands declined in April.

Fifteen large U.S. banks with global operations were downgraded by a rating agency that many analysts viewed an action four years too late.

The UK indexes turned lower after home price sentiment index remained unchanged in June. Investors focused on the rising prospects of a larger bailout in Spain and growing problem at domestic banks.

Asian markets declined as global economic slowdown worries gathered storms and central bank in India took steps to arrest the sharp fall in the rupee. The rupee touched a record low at 57 against a dollar as oil companies hunt for dollars to pay for the monthly import bill of $10 billion $12 billion.

The Reserve Bank of India reportedly instructed oil marketing companies to route 50% of their U.S. dollar purchases through a single public sector bank to reduce market volatility and arrest the rupee's fall.

The Japanese government reiterated its economic outlook, but warned of downside risks stemming from growing uncertainty about the economic situation in the euro-zone, the Cabinet Office said in its monthly report.

Tokyo stocks declined as investors turned away from international markets and sharpened focused on domestic companies. Resource and steel companies fell more than 1% after prices of gold, copper and oil dropped the most in five months.

Australian stocks tracked lower world markets after resources prices on the rising worries of the economic slowdown. Crude oil, copper and gold fell more than 3% and bank worries rose after another round of downgrade of European and American banks.

Commodities, Bonds and Currencies

The 10-year bond yield increased to 1.66% and 30-year bond rose to 2.74%.

The U.S. dollar inched up to $1.256 to a euro and rose against the Japanese yen to 80.46 yen. Indian rupee dropped to a record low of 57.17 against the dollar as trade deficit hovers near $100 billion a year.

Immediate delivery futures of Texas crude oil increased $1.89 to $80.05 a barrel and Brent crude rose $1.86 to $91.04, futures of natural gas increased 0.04 cents to $2.65 per mbtu and gasoline price increased 2.5 cents to 257.42 cents a gallon.

In metals trading, copper added 1.5 cents to $3.32 per pound, gold increased $4.50 to $1,570 per ounce and silver traded flat at $26.90.