It’s probably fair to say that Tuesday was a good day for equity markets even if investors were not sure why they were predominantly on the buy side. After the turbulence immediately following the Greek election result at the weekend, the sweet promises of bazookas from the G20 leaders and a possible ‘Ben Bonanza’ have seemed like balm to investors’ frayed nerves. Markets in Europe , including the FTSE 100, generally closed around 1.7% higher although Spain and Italy showed the hyperactivity typical of late by climbing 2.7% and 3.3%, respectively. The tone was assisted by a successful, though more expensive, sale of Spanish bonds and falls in the yields of the 10-year government bonds for both countries. Market indices in the U.S. closed about 1% higher on the day.
Special features amidst the ‘risk-on’ mood in London included television broadcaster, ITV (+2.8%) on a combination of bid speculation and the company’s current bond tender which will boost earnings by reducing borrowing costs. Home Retail’s latest quarterly figures were less bad than expected and the shares rose by 24% from the previous day’s close. A caffeine kick from Costa Coffee boosted Whitbread by 6.4% to £19.67. British technology success story ARM Holdings which designs chips for Apple Inc is expected to provide input to the new Microsoft ‘Surface’ computer tablet. The shares gained 3.6%. Among engineering services plays, Weir Group recovered some ground after recent weakness as the company restated its positive prospects for the current year’s trading and the shares rose by 4.6% on the day.
The S&P 500 Index rose almost 1% on expectations of imminent accommodative action by the Federal Reserve after the recent run of poorish U.S. economic data with an extension of ‘Operation Twist’ being considered highly likely. Standout stock moves included Microsoft (+2.9%) on ‘Surface’ effect, Oracle (+3.1%) on strong quarterly numbers.
On news that Swiss wealth manager Julius Baer is negotiating with Bank of America Merrill Lynch to buy their wealth management group for a rumoured $2 Billion, BofA’s shares rose 4.5%. The shares were also helped by the news that the Federal Housing Finance Agency was reviewing its criteria for making banks buy back mortgages. A big faller on the day was the U.S. drugstore chain, Walgreen (-5.9%) after it agreed to pay $6.7 Billion for a 45% stake in British pharmacy group, AllianceBoots.
The mood generally has been one of looking forward to an early Christmas as news from the latest Open Market Committee meeting later today is eagerly awaited. Ahead of the final G20 communique’s release, there was talk of some sort of ‘Eurobond’ solution being agreed to by Angela Merkel but this suggests that she has been standing downwind of a particularly strong Tequila Sunrise. In the event, the eight thousand-plus word communiqué might be summed up in point 4 ‘We will act together to strengthen recovery and address financial market tensions. ‘. This appears to boil down to an agreement that governments will act in a concerted way to keep the Eurozone project afloat.
Wednesday has opened with Europe and London mixed and follows a lower close on the Shanghai Stock Exchange Composite Index (-0.3%) on concerns about signs of slowdown in the economy but then a little thing like the impact of a slowing China on the global economy shouldn’t trouble anyone, should it ? The Spanish Government 10-year yield is back down to 6.8% for now while Italy’s stands lower at 5.8%. Markets look as if they have a enough steam to rise a little further before more consolidation is required given that any new measures are likely to need time to take effect.
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