Global markets soared today after the EU announced a 750 billion euro stabilization fund to battle against speculation in the euro that pushed the single currency lower more than 9% year-to-date. Australia's S&P/ASX index was the best performer in the Asian session, advancing nearly 2.7%, with the Hang Seng index and the Nikkei 225 up by 1.6% and 2.22% respectively. European markets were sharply higher early in London trade, with the CAC 40 index surging 7.3% on better than expected French industrial and manufacturing production data. Yield spreads between Greek and German 10-year debt softened by 585 basis points after the EU and IMF agreed on a massive emergency fund for struggling European sovereigns. In an attempt to contain the debt threat from spreading to periphery nations, the package will lend nearly $1 trillion in aid in the form of bond purchases and loan guarantees. Although the plan will provide a reprieve for battered markets, investors remain wary. A default in the short-term has been averted, but the longer-term issue of solvency remains. Strict austerity measures recently adopted in Greece, albeit improves short-term liquidity, will hamper economic growth in the region. Until markets are convinced that the nation will be able to implement significant structural reforms to reduce deficits, traders will remain speculative.
Commodity prices were firmer with crude oil climbing to $78.25 per barrel. Last week, crude prices fell more than 13% as global markets erased 2010 gains on concerns over sovereign debt contagion in the Eurozone. Gold was lower on improved risk appetite, falling more than 1.25% to $1189.25. The precious metal is likely to remain under pressure, but will be vulnerable to swings in market sentiment as we await more details out of Europe. The dollar index was also weaker, briefly dipping below the 83 figure before recovering to 83.20.
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