Global financial markets are cheering the European Union’s $1 trillion rescue plan. (Cynics might call it a $1 trillion bribe to the markets, but I’d never join in suggesting that.)
The goal was to produce a plan that awed the markets with its sheer size. For a day at least that has worked.
The plan bundles together nearly $1 trillion in loans, loan guarantees, promises of guarantees, vague pledges, and backstop bond purchases from the European Union, individual European Union governments, and the IMF (International Monetary Fund.) In addition European Central banks have joined in by buying government bonds on European markets this morning. It’s that actual buying by European central banks that seems to have convinced the markets that the European Union finally means business by putting actual cash on the line instead of politicians’ promises.
So how are the markets reacting?
In reaction FTSEurofirst 300, an index of top stocks across European markets, jumped 6.5%. European bank stocks soared. The IBEX 35, Spain’s benchmark stock index, rose to its biggest gain on record. The euro was up 3.7% against the yen, the safe-haven currency of choice in recent days, as of 7 a.m. in New York.
Futures on the Standard & Poor’s 500 rallied to their limit. June contracts on the index were up 4.4% as of 9 a.m. in New York. NASDAQ 100 futures were up 4.2%.
Of course, it doesn’t hurt that the market was down so far last week that many analysts began this week calling the indexes oversold and due for a bounce.