John Dance

ECB lending and US data boosts sentiment

Positive momentum continued into the end of the week today as European indices soon found themselves broadly 1% higher. In a statement to the Bundestag lower house, Angela Merkel reiterated Germany’s opposition to Eurobonds, stating that they would not be a quick fix to the eurozone crisis. Her proposed solution to the problem, which was compared to a marathon by way of analogy, will take the form of longer term fiscal integration and governance. We also learnt that Merkel and Sarkozy would meet on Monday to agree proposals that are to be announced at the much anticipated EU summit on the 9thDecember.

The main piece of news driving markets was however an announcement that the ECB was to lend to the IMF. The suggestion was made by individuals familiar with the negotiations and implied that up to €200 million of central bank loans could be channelled through the IMF to potentially underwrite lending facilities for struggling European nations.

A raft of economic news was also released from the US around midday, with non-farm payrolls increasing in line with expectations. The major take away was however a decrease in the overall unemployment rate, which fell from 9.0% to 8.6%, much better than forecasts which had anticipated an unchanged reading. Whilst the unemployment rate remains unsatisfactorily high, investors welcomed evidence that the US may avoid a recession, even if it is dangerously close.

As we have come to expect of late, it was the banks and miners that led the indices higher with Britain’s Barclays, Lloyds and RBS appreciating by 7.6%, 5.8% and 5.3% respectively. The index closed up 1.15% to finish at 5552, today’s 62 point gain contributing to an impressive weekly performance of 4.5%.

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