John Dance

Markets surge on central bank lending - Latest Market Analysis

Markets continued their upward surge in early trade, as comment from the Merkel, Sarzozy & Papandreou conference call last night reassured investors that Greece would not be subject to a disorderly default. It was confirmed by the leaders of Europe’s two largest nations that Greece was “integral” to the eurozone, with Greece reiterating its commitment to deficit reduction. Additionally and following Italy’s disappointing bond auction on Tuesday, this morning’s Spanish debt issue went relatively well, helping markets across Europe add around 2%.

British retail sales data released today showed that sales volumes fell 0.2% last month, although this was slightly ahead of the 0.3% decline that had been estimated. A raft of economic data was released from the US later in the day however that largely disappointed. Weekly jobless claims unexpectedly climbed 11,000 to 428,000, with increasing price pressures evident from a 0.4% monthly increase in the consumer price index. Whilst this initially caused a slight wobble in equity markets, it was shortly followed by news that would see this data largely overlooked.

Investors learnt that the ECB was to re-introduce three month dollar liquidity to eurozone banks in what was described as a morphine shot to the beleaguered banking sector. Dollar liquidity has become a major concern recently in the interbank lending market as creditors, notably in the US, worried over counterparty exposure to sovereign debt. The involvement of the Bank of England, the US Treasury, the Bank of Japan and the Swiss National Bank in the move demonstrated the kind of concerted international effort that has been lacking of late.

Stock extended their rally, many European banks enjoying double digit gains, with Britain’s Lloyds topping the FTSE 100 with a 7.2% increase. Shares in Kingfsher had initially led the blue chip index with a 6% gain, the B&Q owner posting strong first half results that beat analyst’s forecasts and triggered price target upgrades. The shares ended the day up 4.8% at 251p. Gold, increasingly watched as a barometer of risk sentiment, lost 2.2% as money poured into riskier assets, the FTSE 100 ended the day up 111 points, or 2.1%, at 5338.

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