The European officials came through and market participants appear to be happy at least for the moment. The plan that was announced did not have every “I”’ dotted and “T” crossed, but it is good enough for now.
Here is an outline of the plan as the markets around the globe are reacting to:
- Leverage the EFSF to €1 trillion Euros
- A “voluntary” 50% haircut for private sector holders of Greek debt
- A bank recapitalization plan of ~€106 billion Euros, with banks required to have a 9% Tier 1 capital ratio
- Italymust pledge to implement structural reforms to boost growth and to cut liabilities (specifics to be due by Nov. 15)
- Greecewill receive €130 billion Euro aid package, up from €109 billion Euros
- China’s reported interest in taking on some type of creditor role in the European rescue effort was courted
- An indication from incoming ECB President Mario Draghi that the ECB will continue to buy sovereign bonds as leaders continue to work to get the expanded EFSF implemented
Time will tell if this gets ratified by all countries. Implementation risks remain high.
This morning though, the market is applauding the Eurozone leaders. We need only the market itself to tell us that.
All of the gains in the pre market were made ahead of the Q3 GDP report, which turned out better than expected, or better than feared, which ever way you want to look at it.
GDP was led by a 2.4% jump in personal consumption expenditures, and third quarter GDP increased at an annual rate of 2.5%. It marked the strongest GDP growth since third quarter a year ago.
What is notable is that this GDP report should put a rest to the recession banter.
Initial unemployment claims for the week of October 22 were also reported before the market opened and held firm at 402,000. Continuing claims for the week ending October 15 dropped by 96,000 to 3.645 mln.
A special commentary of the stock markets advance was written yesterday. Anyone trading or investing in this market would do well to read it and follow along on the two provided charts. It may come as an epiphany to those who would like to trade better, to know when to enter the stock maket, and when to sell. It underscores how a simple trading plan can make things much simpler and revolutionize results.
Trade with a plan