EU Agreement Ignites Buying Frenzy on Wall Street
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Traders across the globe scooped up equities, commodities and other risky assets amid optimism that European policymakers are taking decisive measures to put an end to the continent's debt crisis.
Today's Markets
As of 3:20 p.m. ET, the Dow Jones Industrial Average rallied 237 points, or 1.9%, to 12840, the S&P 500 jumped 28.5 points, or 2.1%, to 1357 and the Nasdaq Composite climbed 76.9 points, or 2.7%, to 2926.
It wasn't only equities that rallied on Friday. Oil surged $7.27, or 9.4%, in its best daily advance since February 2011. Meanwhile, gasoline leaped 4.3% and gold charged 3.5% higher.
A Sigh of Relief
In a sign of the breadth of the buying, volatility dropped nearly 10% as tracked by the CBOE's VIX and there were six trades in advancing shares for each in a declining share on the New York Stock Exchange. The yield on the U.S. 10-year bond jumped 0.73-percentage point to 1.652% as traders ditched the safe-haven asset class.
After days of trepidation leading up to the European Union summit, traders were finally able to breathe at least a temporary sigh of relief on Friday. The European Council said in a statement early Friday that is "imperative to break the vicious circle between banks and sovereigns."
As a result, it is planning several moves aimed at easing embattled eurozone credit and financial markets. One of the most important components is the introduction of a single bank regulator that would work with the European Central Bank and oversee the bloc's banks. Once that is set up, the European Council said it will allow banks to borrow directly from the European Stability Mechanism (ESM), which is the eurozone's permanent rescue fund. That is important because right now banks need to borrow via their countries, which in turn increases those countries' national debt levels.
On a more technical level, the European Council also said the ESM will not become a senior debt holder when it lends to banks in Spain. There were worries that if that occurred, it would spook private bondholders who see their holdings become subordinate.
The statement said the formal plans should be crafted by July 9. While market participants cheered the news, many analysts remained concerned about the long-term stability of the eurozone.
The measures "exceeded the market's mean view because risks had been skewed to the downside: there had been a significant probability that no agreement would be made at all," analysts at Barclays wrote in a note to clients.
"However, the agreement represents only a limited move forward and deep disagreements remain between euro area countries, so it is far from a game-changer."
Eurozone blue chips surged 5% in the best session of the year and the euro soared 1.9% to $1.2674.
Despite the big gains on the day, stocks are still looking to close the quarter out with sizeable losses. Indeed, the broad S&P 500 is poised to shed more than 3.5% for the quarter.
Data Deluge
Wall Street also got several economic reports.
Consumer spending remained flat in May from April as expected while personal income rose 0.2%, also as expected, the Commerce Department reported. The manufacturing sector in the mid-West region expanded at a slightly faster pace in June from the month before, according to data from the Institute for Supply Management-Chicago. The more closely-watched national ISM report is slated for release on Monday.
A final reading on consumer sentiment for the month of June came in at 73.2, the lowest level since December 2011 and down from a reading of 74.1 in early June, according to a survey by Thomson Reuters and the University of Michigan. Economists expected the gauge to hold steady at 74.1.
Foreign Markets
The Euro Stoxx 50 surged 5% to 2265, the English FTSE 100 rallied 1.4% to 5571 and the German DAX soared 4.3% to 6416.
In Asia, the Japanese Nikkei 225 gained 1.5% to 9007 and the Chinese Hang Seng jumped 2.2% to 19441.