Member Article

German data and Merkel concessions boost markets

Markets were relatively buoyant this morning, despite a mixed Asian session overnight. News from Germany certainly provided some support, with a German Ifo business climate index coming in slightly higher than anticipated and providing some comfort to investors after a very disappointing set of PMI readings from the region last week. Additionally, Germany conceded to the idea of allowing the European Financial Stability Mechanism and the European Stability Mechanism (the current (temporary) and proposed (permanent) regional bailout funds), to run in parallel with one another. This was previously a sticking point within the Eurozone, and German concessions may pave the way for a firewall with the weight of €700 billion, ahead of the €500 billion cap that the Germans had originally pushed for.

There were however reminders that the Eurozone crisis isn’t resolved, with Italy’s Prime Minister Mario Monti pointing to Spain who he warned had the potential to reignite the crisis and suggesting that the country “hasn’t paid enough attention to its public accounts”. The comments highlighted debt sustainability and with a setback in regional Spanish elections for the governing People’s Party, the country was back into the limelight. The Spanish stock market (IBEX) was notable for a decline on a day that saw most of its European peers trade higher.

News form the US also helped stocks and commodities, with a discernible pessimistic tone from a Ben Bernanke speech seen as increasing the likelihood of more quantitative easing. The Federal Reserve Chairman suggested that the economy would have to grow more quickly to produce enough jobs and bring the unemployment rate down. Whilst news of a weaker economy would usually dampen appetite for risk assets, the intervention measures and lose monetary policy would weaken the dollar and so actually benefit stocks and commodities. US indices were up around 1% at the time of writing.

The FTSE 100 finished the day near its highs with a 0.8% gain to 5902.7. Tullow Oil was the best performer on the day posting a 6.6% gain to 1570p after updating the market about its first oil discovery in Kenya. The discovery was hailed as a “major breakthrough” by the country’s president.

This was posted in Bdaily's Members' News section by James .