Global stock markets registered a second day of strong gains in response to reports that European leaders were busy working on the details of a comprehensive plan to bail out Greece and secure the finances of other vulnerable eurozone economies.
The FTSE 100 rose 4% to 5294 while the French CAC and German DAX closed up more than 5%. In mid-afternoon trading, the Dow Jones was up 2.89% at 11 363.
Bond markets, which have shown a flight to safety in recent months, eased with demand for Italian and Spanish bonds rising. Copper, up 7.3%, led a rally in commodities prices which also saw US crude oil up 4.3% near $84 a barrel, while the spot price of gold rose 1.8% to near $1 660 an ounce after several days of heavy falls from its recent record high over $1 900.
Richard Batty, global investment strategist at Standard Life, said a relief rally was under way following a change of direction by at least some senior EU officials.
“The market is anticipating that EU leaders understand now is the time to react. There is a sense that the Europeans would be very foolish not to do something big to rescue the situation,” he said.
EU officials signalled at last weekend’s International Monetary Fund gathering in Washington that Brussels is preparing to raise the size of the eurozone rescue fund from €440-billion to €2-trillion and concede a 50% write-off on Greek sovereign debts.
The shift in thinking among officials, most of whom denied the seriousness of the debt problem until recently, was considered a seismic one by many investors and heralded a new realism by EU leaders.
Batty said if progress is not seen to be made over the next few weeks and leaders continue to openly disagree over the need for a bigger bailout, then the current rebound in investors’ appetite for risk would dissipate.
A vote on Tuesday night in the Greek Parliament to impose a property tax to raise about €2-billion should be enough to convince the European Central Bank and IMF, which supply the country with new loans since it was frozen out of international private markets, to release the next €8bn due from its €110-billion bailout facility.
Without the €8-billion tranche, Greece faces running out of money to pay all its commitments by the middle of October.
UK finance minister George Osborne said last weekend that countries have six weeks at most to save the euro, and that a larger bailout fund was needed to convince bond markets that a sufficient buffer against further difficulties in the eurozone was in place. – guardian.co.uk