Member Article

EU deal boosts investor confidence

Investors responded positively to the output from the EU summit and increased their appetite for risk. European Stock Markets surged, the euro rose over 1.2 % against the Dollar, and Spanish and Italian yields slide sharply after European leaders agreed on bank recapitalisation.

The euro-zone agreed to use the planned bailout fund to stabilise debt markets and to aid Spain and Italy to bring down their unsustainable borrowing costs. The leaders also confirmed that the new permanent bailout fund (ESM) should be allowed to lend directly money to struggling banks, via the European Central Bank (ECB), without adding to government debt. EU Council President Herman van Rompuy said it would “break the vicious circle between banks and national government”. The planned new growth package to press Spain and Italy for action would consist of

- a 10bn-euro injection for the European Investment Bank in order to raise the overall lending capacity by 60bn euro
- a relief for small enterprises and create youth employment by targeting 60bn euro of unused structural funds
- and an improvement in infrastructure, by launching EU project bonds worth 4.5bn euro.

The deal caught markets by surprise, the FTSE100 and Germany’s DAX to open at 5595, 1.85% higher respectively at 6304, 2.4% up from their previous closes and Paris’ CAC 40 spiked 2.05 percent to 3,114.08.

Spain’s 10-year yield was pushed down by 39 points to 6.56% and Italian’s 10-year yield dropped as much as by 42 basis points to 5.78%. Oil rose by more than $2 and although gold prices has fallen 5.87% since March the metal jumped over 1 % on Friday’s early trading.

Americans were more cautious about spending this year; this statement was confirmed by the Commerce Department that published its statistics today. The US consumer spending showed no gain and remained flat in May (analysts forecasted a rise by 0.1%).

The rise in London house prices was in favour of Britain’s second-largest homebuilder Berkeley Group (BKG.LN). After the company sold more of its houses at higher prices, profits rose by 66% and the Net Asset Value per share up 18.3% to 839.3 pence.

After a difficult week, European Stock Markets performed mostly green today. The FTSE100 finished the day up 1.4% at 5570.18 points, followed by the DAX, 4.18% higher at 6406.85.

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