BusinessDesk: A deal in Europe and surprising growth in the US

BusinessDesk: A deal in Europe and surprising growth in the US

European Union leaders appeared to have managed expectations with great skill, surprising and pleasing investors around the world with an unexpected agreement on measures to resolve the sovereign debt crisis that has been hammering stocks and the euro for the past two years.

EU leaders agreed to boost the region’s bailout fund and also reached a deal with bondholders on the losses they will take on their Greek debt to help the embattled nation.

Private holders of Greek debt accepted to take a 50 percent write-down, while the region’s rescue fund will rise to 1 trillion euros (US$1.4 trillion).

Investors cheered the deal, breathing a sigh of relief after months of a lack of progress to stop the crisis that threatened to derail a global economic recovery.

"As a result of the fact that we've potentially taken euro Armageddon off the table there is sort of a refocusing on domestic fundamentals, which frankly have been pretty good over the last month," Phil Orlando, chief equity market strategist at Federated Investors in New York, told Reuters.

In Europe, the Stoxx 600 Index ended the day with a 3.6 percent gain to close at the highest level in nearly three months.

In afternoon trading in New York, the Dow Jones Industrial Average jumped 2.70 percent, the Standard & Poor's 500 Index climbed 3.20 percent and the Nasdaq Composite Index soared 3.36 percent.

"You've got a lot of folks that were defensively positioned, many of whom were short different aspects of the market and they've got to reverse those bearish bets in light of what is actually happening," Orlando said.

The write-down that private owners of Greek bonds will accept allows both a 100 billion euro drop in the nation’s sovereign debt and a new 100 billion euro lifeline for the embattled country, German Chancellor Angela Merkel said on Thursday.

"Our goal is that the debt of Greece by 2020 is 120 percent [of GDP]," Merkel told journalists after a meeting of euro zone leaders, according to Reuters.

"A nominal haircut of 50 percent has been agreed. On the basis of this, we will have a new program for Greece with a value of 100 billion euros."

The battered euro rallied as a result of the deal, rising as much as 2.3 percent to US$1.4220. It last traded at US$1.4209.

The greenback dropped 1.87 percent against a basket of its major counterparts.

“European leaders bought themselves several months of time at least,” Brian Dolan, chief strategist in Bedminster, New Jersey at, told Bloomberg News.

“Even before the summit, we had a push in the euro, down in the [US] dollar, up in all the risk currencies, higher in stocks. The bond market continued to take a pretty jaded view of all the goings on, and that has continued.”

Among companies reporting earnings today were Dow Chemical and Exxon Mobil. Both stocks found approval among investors in today’s cheerful environment, even as Dow Chemical’s quarterly result didn’t quite meet expectations.

Of 262 companies in the S&P 500 that have reported quarterly earnings, 72 percent have exceeded Wall Street estimates, according to Thomson Reuters data.

Data showing the US economy expanded at its fastest pace in a year in the third quarter added to the optimism that a recession can be avoided. US gross domestic product rose at a 2.5 percent annual rate in the third quarter, up from 1.3 percent in the prior three months, the Commerce Department said.


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Greeks have lost their sovereignty and there is dancing on the street.  The world is truely mad.

“European leaders bought themselves several months of time at least,” Brian Dolan, chief strategist in Bedminster, New Jersey at, told Bloomberg News.  Lets do the math on that one, 1trl = several months, apparently they can leverage this up to 5trl if they want, so 2 more years.  I can continue with plan b and c, with the goal of reaching plan d in a couple of years.  Plan a: get a loan to expand my business is far too risky, I'd rather be prosperous then grow.

Look closely...those dancing are stark naked....has to be the funniest image...The agreement has no small print in's an agreement to reach an agreement....

Here is the news: It is not possible to find a way out of the new insurance spin....or any mixture of these 'answers'. The current market bounce will fizzle or crash as the truth about the non agreement leaks out....the can is again clattering down the road.

Europe’s Punishment Union

Very quickly, there has been much loose talk about EU fiscal union. What was agreed at 4AM this morning is nothing of the sort.

It is a "Stability Union", as Angel Merkel stated in her Bundestag speech. Chalk and cheese.

"Deeper economic integration" is for one purpose only, to "police" budgets and punish sinners.

It is about "rigorous surveillance" (point 24 of the statement) and "discipline" (25), laws enforcing "balanced budgets" (26), and prior vetting of budgets by EU police before elected parliaments have voted (26).

This certainly makes sense if you want to run a half-baked currency union.

Reality is very different to the managed perception (propaganda):

After due consideration of the detail of the ‘deal’ announced at 4am by EU leaders this morning, The Slog can confirm that the IIF has yet to deliver participation by the bondholders to take a 50% haircut on Greek debt; that bank recapitalisation will be 106bn euros, rather than the IMF recommended target of 300bn; and that the much-vaunted ‘leveraging’ of the EFSF is entirely dependent on the newly-created spiv.

At midnight last night, the EU leaders had nothing concrete at all in the way of an agreement. It now transpires that they didn’t at 4 am either. The deal heralded throughout the European press today can now be revealed as a content-free sham cobbled together at the last moment…such revelation having been achieved with the help of the ever-insightful Bankfurt Mole.

In no particular order of importance, these are the ‘unresolved’ parts of the agreement:

  1. The International Institute of Finance (IIF) – a sort of bankers trade union – has accepted in principle voluntary Greek bond haircuts of 50%. But they have yet to deliver participation by the membership. “Personally, I think such cooperation to be unlikely in the extreme” said Bankfurt Mole, “because in many cases it will act against their CDS interests. Also they do not like to set such precedents”.
  2. The raising of the additional 860bn euros to ‘leverage’ the EFSF fund is yet to be attempted. In reality, the Special Investment Vehicle (SPIV) is the chosen method: the ideas is that BRIC countries like Russia, China and Brazil will provide this gigantic amount of money.
  3. This too is unlikely to materialise. With Germany specifically capping its EFSF loss limit at 210bn euros, there is no guarantor of last resort – the first thing investors will be seeking. Any losses incurred by investors will be insured for up to only 20% of value. “In the context of 50% haircuts, this is hardly an attractive deal,” comments Bankfurt Mole. (Sarkozy has already announced that he’ll be on the blower to Wen Jaibao forthwith. We are saved.)
  4. Although the IMF recommended a 300bn eurobank recapitalisation, the sum agreed last night was a mere 106bn. We also still await so much as a peep of comment from the formerly gobby IMF boss Christine Lagarde.
  5. The plan calculates that, if achieved, it will reduce Greece’s debt to gdp ratio to 120% by 2020. Few observers of the Greek economy see this as anything other than a fantasy: the country’s GDP is shrinking rapidly, while its austerity measures are lagging far behind. Given this last point, the question remains as to what relief if any the Troika will recommend giving the Athens regime three weeks from now.
  6. The Italian leader Berlusconi’s submission of reform measures to the EU leaders yesterday was regarded, off the record, as risible. With 860bn of the 1.3 trillion EFSF bazooka still to be raised, not even the full amount could bail out Berlusconi’s Boot. No mention has been made of this so far.
  7. The largest mammoth in the understairs loo remains France, whose banks are exposed heavily to both Greek and Italian bad debt. Barred from access to the EFSF for the foreseeable future (if it has any) France will be forced to raid its own assets to bail out largely Government-guaranteed banksters. The obvious, easily tradeable asset is its gold reserves. Raiding these must, given the mind-boggling amounts involved, doom the country’s AAA rating. And that will adversely affect the credit rating of the EFSF….with or without spiv leveraging.

Just another day !

I’m surprised by the fact that although on so many fronts the situation is so desperate, awaiting major changes - but no - we are just carry on driving towards the cliff.

Good morning

Punters ought to learn from the 'bounce'. Those willing to place bets in the market, now know there are enough idiots and govt/bank insiders out there to trigger plenty more of these over the coming months....They may decline in strength...the will probably be followed by deeper drops....but the liars and crooks will keep the game going and going.......and going.

Why would any Greek ( or Irish, or Italaian, or French etc) citizen pay off any of their debts, now? After all, it will be a bank that suffers the bad loan, and the bank then just trots off to the EFSF and gets bailed effect, by the same taxpayers who have defaulted on their loans! This is going to be worth watching.....

Good point why pay twice when you don't have too.

If there's any dancing in the street it must be the dance of death

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