D-Day, the day after.
European stocks gained this morning and yields on riskier euro zone government debt fell sharply as investors cheered up the bold measures by ECB to tackle the region’s three year old debt crisis.
The main driver of the market’s rises today is still the ECB’s potentially unlimited bond buying, which is expected to lower the borrowing costs for heavily indebted nations like Spain and Italy easing fears over the future of the euro.
The euro was up 0.4 percent at $1.2685, its highest level since early July, before Draghi made his dramatic pledge to do everything possible to save the euro.The single currency was also at a two-month high against the safe-haven yen of 100.15 yen and an eight-month peak versus the Swiss currency at 1.2148 Swiss francs. Reuters reports.
Sentiment further improved after German exports unexpectedly edged up in July.
The Stoxx Europe 600 Index rose 0.4 percent, on course for the highest close in 14 months. The volume of shares changing hands on the Stoxx 600 was more than double the average of the last 30 days, data compiled by Bloomberg show.
A measure of banks led gains, with Portugal’s Banco Espirito Santo SA surging 8.3 percent and Germany’s Commerzbank AG rising 6.1 percent. The Stoxx50 rose 1.26% to 2,556.77, in the regional benchmarks’ space: German Dax traded 0.84% higher to 7,227.57 after German exports unexpectedly edged up in July, in Souther Europe the Spanish Ibex inched up 0.47% to 7,898.60, the Italian FtseMib led gainers rising 2.26% to 16,137.01.
Since the ECB President Mario Draghi said he would do “whatever it takes” to save the euro, Spain’s Ibex has surged 33 percent, while Italy’s FtseMib is up 29 percent.
The extra yield investors demand to hold Spanish 10-year bonds instead of German bunds, Europe’s benchmark government securities, fell to the least since May 4. The rate on Germany’s two-year note was positive for the second straight day, climbing three basis points to 0.06 percent. Credit-default swaps tied to Spain’s debt fell 55 basis points to 341, the lowest since Feb. 8, while Italy declined 39 basis points to 315, the lowest since Aug. 1, 2011. The Markit iTraxx SovX Western Europe Index of credit-default swaps tied to the debt of 15 governments fell for a sixth day, declining 16 basis points to 195. Bloomberg reports.
The point now is: Is the financial crisis over??
The reality is that ECB Governor Mario Draghi based the central bank’s strategy for supporting the peripheral bond markets on manipulating market expectations of what the ECB will do, in the belief that the bank will then not need to do very much at all.
To mention the Maradona theory of bond market intervention presented in the BNP Economic Desknote: “ If the central bank commits to intervening with unlimited firepower and is credible, then it might not actually need to do anything at all. So far, the rally in peripheral debt and the drop in volatility would suggest it appears to be working – and working very well. Mr Draghi’s revelation that there was just one vote against the ECB’s action yesterday was aimed at underpinning the credibility of the action. The firmness of the Draghi delivery has to be seen in the same light.”
How long the Maradona theory of bond market intervention will work for?
The answer: it will depend on the other players pitch.
At this point the ECB credibility is on the table, at the moment Mr Draghi sounds credible, but Actions speak louder than words…
Think about it.
US NFP are half an hour away therefore get ready for the big number.