Markets rallied this afternoon on a rate cut by the European Central Bank, and on news that the Greek government had bowed to pressure and scrapped its planned referendum on the latest bailout plans.
However, confusion still prevails about whether the incumbent Greek prime minister will remain in office by the end of the week.
By 3.50pm (London time), the Dow Jones was up 0.98% at 11,951.91, while the S&P 500 had gained 0.88% to 1248.8. In London, the FTSE 100 managed to push firmly above the 5500 level, up 1.18% at 5548.71.
‘Super Mario’ takes action
It always pays to start a new job with a bang. Mario Draghi has barely finished arranging his photos and plants in his new office, but already he has surprised spread betting markets by announcing a 25-basis-point cut in Eurozone interest rates.
This is additional evidence that the Eurozone is slipping from recovery to recession, with the position made worse by the ever-changing situation in Greece. Rates were trimmed to 1.25%, which some might see as an implicit admission that the early-summer rate increases were a mistake.
I can imagine ex-president Jean-Claude Trichet choking on his vin blanc as he watched the announcement come through. During his press conference, Signor Draghi opted for brevity in his answers, eschewing his predecessor’s more obfuscatory tone.
He commented that the main risks to the economic outlook remained on the downside, with inflation likely to remain elevated for some time to come. The decision to cut rates was unanimous, which perhaps reflects the level of concern at the ECB about the deleterious effects of the sovereign debt crisis on Europe’s economic recovery.
Confusion reigns in Europe
Over in Athens, Greek politicians seem to be doing their utmost to create uncertainty in both the chanceries and financial centres of the world (something Clausewitz referred to as ‘the fog of war’).
At first, it seemed as if the outcome of this morning’s cabinet meeting was that current Prime Minister George Papandreou would resign, but it then transpired that Mr Papandreou was determined to cling on by his fingernails, and would address his party and then parliament later today.
News emerged later this afternoon to the effect that the referendum, the announcement of which had kicked off all the latest market conniptions, had been called off, apparently as a result of pressure from Berlin and Paris.
The news that the referendum had been cancelled has served to boost risk appetite decisively, at least for the moment. The euro, which dipped into negative territory against the US dollar following the rate cut, managed to push higher, while shares spread betting markets managed to consolidate gains.
US economic data perennially mixed
Nine thousand fewer Americans filed for first-time jobless benefits last week, pushing the number of claims below 400,000, to 397,000, the lowest for a month. However, the number of initial claims for the previous week was revised up from 402,000 to 406,000, so there is little cause for rejoicing.
The upward revision of prior week figures has become a weekly ritual, so it is entirely possible that this week’s figure will be nudged back above the 400,000 mark. Meanwhile, service industries in the US expanded at a slower-than-expected pace, according to the Institute for Supply Management.
The index slipped from 53 to 52.9, its lowest level in three months, having been forecast to rise to 53.5. Reduced household demand limited hiring in the non-manufacturing areas of the US economy, and growth is expected to remain modest for some time to come.
Second US broker comes under fire
To lose one primary dealer in the space of a week is unfortunate; the possible loss of a second looks like carelessness. US bank Jefferies, which is one of the select few institutions allowed to participate in US debt auctions, was forced onto the defensive today after its share dropped 20% in opening trading.
The company said that it had no ‘meaningful’ exposure to European sovereign debt, with only $38 million in primary exposure. Concerns about the impact of the debt crisis have shifted to Jefferies following the bankruptcy this week of MF Global, whose chief executive, Jon Corzine, placed large trades on southern-European government debt.
The shares staged a recovery during the afternoon, and were down 6.6% at $11.46, having stood at $27 in January this year.
International growth boosts ASOS yet again
ASOS, the online clothing retailer, reported that its international division was continuing to outstrip performance in its UK business. Pre-tax profit before exceptional items for the company’s first half was up 66% at £11.65 million, although including exceptional it dropped 36% to £4.485 million.
UK sales were 8% higher, but international sales leapt once again, up 150%. ASOS, which this year added sites in Australia, Italy and Spain, expects full-year performance to be in line with expectations.
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'FTSE 100 Spreads Rally on ECB Interest Rate Cut', Article by IG Index, last update: 3-Nov-11
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