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Euro Hopes Ignite Broad Rally; Dow Soars 2%

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A round of upbeat news on the European sovereign debt crisis sent Wall Street rallying for the third-straight day. 

Today's Markets

As of 3:15 p.m. ET, the Dow Jones Industrial Average jumped 229 points, or 2.1%, to 11,335, the S&P 500 gained 24.1 points, or 2.4%, to 1,197 and the Nasdaq Composite climbed 58.1 points, or 2.3%, to 2,591. 

American markets have been highly-sensitive to developments from the from the other side of the Atlantic as market participants have worried that Europe's sovereign debt crisis may pose a threat to the global financial system.  

Germany and France, the two biggest economies in the euro zone, affirmed Greece as an "indivisible" part of the European Union, according to a report by Dow Jones citing a statement.  The move helped minimize concerns that Greece would break away from the currency bloc as it struggles with its enormous public debt load and teeters on the verge of default.  Additionally, the statement noted the Mediterranean country will meet its fiscal targets in 2011 -- a key measure in assuring it gets much needed rescue aid. 

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The Italian Parliament also agreed to take on austerity measures that are crucial in receiving assistance from the European Central Bank in keeping the highly indebted nation's borrowing costs down.  While the measures were widely expected to pass, they were the subject of significant protests, which raised some doubts among analysts. 

Commentary from European Commission President Jose Manuel Barroso suggesting it would present options for developing a so-called euro bond helped ease the tensions as well.  A euro bond, analysts say, would likely be issued and backed by all 17 countries in the euro bloc.  

This would be beneficial to struggling peripheral countries such as Greece and Portugal because stronger economies would essentially be underwriting the debt.  Germany, the region's biggest economy, has strongly objected to such bonds recently, and a ruling by its Federal court would make it a difficult measure to pass. 

However, not all developments on the day were upbeat.  Moody's slashed the credit rating of two major French banks, Societe Generale and Credit Agricole, on Monday amid concerns over their exposure to Greek sovereign debt. 

The pace of major economic data releases is the heaviest on Wednesday and Thursday this week. Inflation at the wholesale level was unchanged in August, compared with expectations of a 0.1% decline. Excluding the food and energy components, prices were up 0.1%, a slightly smaller gain than the 0.2% economists forecast. A more closely-watched report on consumer inflation is expected to be released on Thursday. 

Retail sales were also unchanged for the month, a weaker reading than the 0.2% gain economists anticipated.  Analysts will be looking to what extent Hurricane Irene and growing economic headwinds hit sales by companies like Target (TGT) during the important back-to-school season. 

Business inventories climbed 0.4% in July, compared with expectations of a 0.5% rise.  Sales, meanwhile, edged higher by 0.7% on the month. 

In currencies, the euro gained 0.18% against the U.S. dollar, while the greenback fell 0.03% against a basket of world currencies. 

Energy markets extended losses on a mixed inventor reports.  Crude inventories tumbled 6.7 million barrels, a much bigger fall than the 3.1 million analysts forecast.  Gasoline stocks, however, rose 1.9 million barrels compared with estimates of a 500,000 barrel drop. 

Light, sweet crude fell $1.30, or 1.4%, to $88.91 a barrel.  Wholesale RBOB gasoline fell 2 cents, or 0.61%, to $2.73 a gallon. 

Gold slipped $3.60, or 0.2%, to $1,827 a troy ounce.  The yield on the benchmark 10-year Treasury note increased slightly to 2.02% as investors have moved back into equity markets this week. 

Prices at the pump edged slightly lower overnight.  A gallon of regular costs $3.63 on average nationwide, up from $3.59 last month, and well higher than the $2.72 drivers paid last year, according to the AAA Fuel Gauge report. 

Foreign Markets

The English FTSE 100 climbed 1.3% to 5,241, the French CAC 40 climbed 1.8% to 2,946 and the German DAX soared 3.3% to 5,336. 

In Asia, the Japanese Nikkei 225 slid 1.1% to 8,519 and the Chinese Hang Seng edged 0.08% higher to 19,045. 

 

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