Global Markets Jump on Europe’s Greek Debt Deal

October 27, 2011

By CHRISTINE HAUSER and DAVID JOLLY
Stocks rallied around the world on Thursday, pushing the broader market in the United States back onto positive ground for the year, after European leaders reached a deal to spread the pain of restructuring Greece’s debt and try to bring the crisis in the euro zone under control .

While the deal helped to restore confidence to the financial markets, analysts noted that questions remained about how it would be implemented. They also worried that fully fixing the problems of excessive debt and weak growth could take years.

Still, after days of anticipation, the markets put whatever uncertainties remained behind them, at least for now. Financial stocks in particular were up more than 6 percent.

The Dow Jones industrial average soared 339.51 points to close up 2.86 percent at 12,208.55, while the broader Standard & Poor’s 500 index was up even more, 3.43 percent, at 1,284.56 and the Nasdaq composite index rose 3.32 percent to 2,738.63.

The S.&P. moved into positive territory for the year on Thursday, up about 2.1 percent. The Dow was up more than 5 percent and the Nasdaq more than 3 percent for the year.

Stocks closed up as much as 6 percent in Europe, after a strong showing in Asia.

It was a marked turn-around from just a few weeks ago, when anxiety over the European debt crisis helped push Wall Street to the brink of a bear market. On Oct. 3, the S.&P. 500 was down 19.4 percent from its high on April 29.

The latest news from Europe came early Thursday, when officials from the European Union and the International Monetary Fund reached a deal with bankers to write down the face value of their Greek debt by 50 percent, hoping to reduce the ratio of the country’s debt to gross domestic product to 120 percent by 2020. Economists believe that is essential if Greece is not to default on its loans.

Officials also agreed that European banks would need to raise more capital and said they would increase the euro zone bailout fund to $1.4 trillion, a move that they hope will provide the capacity necessary to keep Italy and Spain from following Greece’s painful path.

“The most important outcome is it seems to remove from the table fears of an imminent bank crisis,” said David Joy, chief market strategist for Ameriprise Financial. “What this does is it buys Europe time to do the hard work of initiating structural reforms.”

But like others, he injected a note of caution: “It addresses the symptoms, but not the disease. They need to follow through, there is no question.”

Economists noted that the deal Thursday was but the latest in a series of such agreements addressing the debt crisis, which are usually followed by gains, then losses in the financial markets.

After the last deal was struck in July, for example, stocks and bonds in Europe and the United States gave it a positive reception. But the sentiment soon turned and markets failed to sustain their gains. The S.&P. in the United States fell below 1,300 after about a week. and eventually sank to its lowest level for the year.

“Overall, then, while the plans represent a step forward, we suspect that they will soon be viewed in the same way as every other policy response during this crisis — as too little, too late,” Jonathan Loynes, an economist with Capital Economics, wrote in a research note.

He said he still expected a “prolonged recession in the euro zone,” further market turbulence, and continued to have doubts about the future of the euro itself “in its current form.”

The Euro Stoxx 50 index, a barometer of euro zone blue chips, closed up 6.1 percent, while the FTSE 100 index in London gained 2.9 percent. In Paris, the main index was up 6.3 percent, while Frankfurt’s was 5.35 percent higher.

Financial shares led European indexes.

The United States 10-year Treasury bond yield rose to 2.37 percent, from 2.21 percent on Wednesday.

The dollar fell against most major currencies. The euro rose to $1.42 from $1.39 late Wednesday in New York, while the British pound rose to $1.61 from $1.5975. The dollar also fell to 75.8 yen from 76.17 yen, and to 0.86 Swiss franc from 0.88 franc.

Anthony Valeri, a fixed income investment strategist for LPL Financial, said that the European deal, to an extent, removed one of the lingering risks to the market and more specifically, to the banking system.

“But the devil is in the details,” he added. “There are some implementation risks going forward.”

He said there were questions about participation in increasing the bailout fund.

“We don’t know the participation from private investors or the emerging market countries, as the case may be,” he said.

Another negative was that banks must meet a new core capital ratio of 9 percent by the middle of 2012, he added. That could mean they could either raise capital or shed assets, which would be a negative for the market because of the pressure on prices.

In Asia, shares were stronger almost across the board. The Tokyo benchmark Nikkei 225 stock average rose 2 percent, the Sydney market index S.&P./ASX 200 rose 2.5 percent, and Hong Kong’s Hang Seng index rose 3.3 percent.

“Bank recapitalization, haircuts and more firepower for the rescue funds are supposed to form a euro-style bazooka,” Carsten Brzeski, an economist with ING in Brussels, said in a research note. “Even if there are still loose ends and unsolved questions, yesterday’s summit was an important step in the right direction.”

Shortly after the deal was announced, United States crude oil futures for December delivery rose 2.8 percent to $92.71 a barrel. Comex gold futures slipped were mostly unchanged, at $1,723.40 an ounce.

Bond market movements showed investors moving out of the securities considered the most secure and into riskier assets.

The Federal Reserve on Thursday is starting a bond buy-back measure that will bump up prices on long-term notes, Mr. Valeri said.

Bond prices for embattled euro zone governments rose sharply, while the yields fell. The yield on Greek 10-year bonds was 22.16 percent, down 1.17 percentage points. Spanish and Italian bond yields also fell.

David Jolly reported from Paris.

Pescod says...

EXTORRE GOLD MINES
CROWN POINT VENT.
(T-XG)
(V-CWV)


It’s hard to believe that Argentina at the beginning of the
20th Century was considered potentially the best economy
of the Americas. So much for management of those rich
natural resources though as between dictators and what-
ever, those resources have been terribly mismanaged.

People had hopes with the election of Cristina Fernandez
de Kirchner, things might be altered positively, but today we
learn the country is lurching from bad to worse. In her first
move since winning re-election Bloomberg writes they have
changed a 2002 decree and is now requiring oil and mining
companies to keep at least 30% of their export revenue in
the country and that applies to all future sales.

Meanwhile, the average Argentinean doesn’t trust his
own government, a government that suggests inflation is
9.9%, but private economists say it’s closer to 24% and be-
cause of that and other factors, Argentineans pulled $10
billion out of their own country in the first six months of this
year and sent it elsewhere. Sad to see such a resource-rich
country so terribly managed, one wonders what next and
how the companies will cope with it.

We caught up with Canaccord oil and gas analyst Fred
Kozak who just a while a go wrote an 83-page report enti-
tled, “Investors Crying for Argentina...But will it be the ad-
ventures of Old or New Cristina?”...referring of course to the
new President and needless to say, Fred is a fan of the re-
sources and potential resources of Argentina, but so many
others wonder about governments there.

As we catch up him today, he suggests that this sell off
in the oil sector in Argentina might well be an opportunity as
he points to the important tidbit and that is...30% of their
export revenues must stay in the country. He reminds us
that the oil and gas companies that are based in Argentina
do not export their oil and gas and of course their revenue
does stay in the country anyway! The mining companies, he
reminds us, that’s a different case as they export most of
their ore or commodities and that might not be a buying op-
portunity, he infers.

Meanwhile there is a long list of companies with assets in
Argentina from Pan American Silver to Yamana Gold to
Goldcorp and even Barrick Gold. Extorre Gold Mines though,
is probably the most exposed.



One of the biggest of the movers on the markets yes-
terday (ironically gold was up 50-some dollars and yet
many gold stocks barely budged) was Orezone Gold, up
almost 20% on the day.

We tracked down President, Ron Little and he sug-
gested that there’s nothing imminent that he knows of
other than a recent marketing trip he did to funds and
brokers in Montreal and Toronto. Must have been some-
thing he was saying…

He reminds us though that while the old Orezone
company he and his current team led was sold, they are
going to make sure the current Orezone is in a different
state of affairs, if and when they ever get to the point of
becoming a potential take-over candidate. None of that
being in debt and at the mercy of other players.

In the meantime, the company sits at about a three
and a half million ounce resource with two million of
those ounces inferred, and their target is that by April
when new resource numbers come out, they hope to be
up to as much as five million ounces with three of that
measured and indicated.

They are still working on a massive drilling program
on their Bombore project in Furkina Faso for 170,000
meters of drilling, averaging about 10,000 meters a
month. The drilling program should be completed by
Christmas and then the bookkeeping starts...calculating
just how big a resource they really do have.

Their project is turning out to be quite a big one with
Bombore being about 11 miles long and anywhere be-
tween a couple of hundred meters and a kilometer wide
and so far much of the drilling has come up with grades
better than had been expected.

Interesting to see that Orezone’s stock has fared a
little bit better than many others in the $300 correction in
gold price, but the question is, what next for the direc-
tion of gold and Orezone?

When we ask Little for any other speculative stocks
out there that one should be looking at, he suggests
Northern Shield in the Ring of Fire.