Hoping Greece Scraps Referendum, Dow Leaps 208
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Notching its second-straight triple-digit rally, Wall Street continued to erase its early-week plunge on Thursday as bullish traders cheered signs Greece may abandon plans for a referendum on its bailout and a number of other developments on the European front.
Today's Markets
The Dow Jones Industrial Average soared 208.43 points, or 1.76%, to 12,044.47, the S&P 500 gained 23.25 points, or 1.88%, to 1,261.15 and the Nasdaq Composite jumped 57.99 points, or 2.20%, to 2,697.97.
In addition to hopes Greece will succumb to international pressure and scrap its referendum, the markets responded favorably to signs Greek Prime Minister George Papandreou will need to relinquish control, a surprise interest-rate cut from the European Central Bank and shares of Jefferies (NYSE:JEF) erasing a 20% plunge.
Concerns about the planned referendum leading to a Greek default mounted earlier this week, but appear to have receded. “At least for now, they have subsided, subject to change by tomorrow,” said Michael James, managing director of equity trading at Wedbush Securities, alluding to the fluid nature of the situation.
While the midweek surge of 387 points isn't enough to wipe out Monday and Tuesday’s tumbles, which wiped out nearly 600 Dow points, the volatility continues to show how focused global markets are on Europe’s efforts to resolve its nearly two-year long sovereign debt crisis.
“The market is really schizophrenic. You can just see the slightest bit of news -- positive or negative -- moves the market in that direction. Everyone reacts instantaneously to the news,” said Jason Weisberg, senior vice president at Seaport Securities. “These swings in the market place are a direct result of that and it's really scared the long-term players away.”
All Eyes on Europe
The latest upswing was set in motion by the events in Greece, which appears to be moving away from the idea of holding a referendum on the rescue aid it was expected to receive. The Greek public has violently protested many of the austerity measures international lenders have pushed for as a condition of the bailout. A "no" vote in a referendum, analysts say, could leave the highly-indebted country with no other choice but to default when its next bond payment comes due next month -- a result that could damage larger economies and slam the global financial system.
Reports also swirled that Papandreou was going to resign, paving the way for a unity coalition run by Lucas Papademus, a former governor of the Bank of Greece. While the resignation never materialized, Papandreou said he wants the legislature to hold a no-confidence vote on Friday.
Meanwhile, new ECB President Mario Draghi made a splash by unexpectedly slicing a key interest rate by 0.25 percentage points to 1.25% on Thursday The ECB had been previously balancing concerns over the escalating debt crisis with worries low interest rates may lead to higher levels of inflation.
After another whirlwind day, European blue-chip stocks closed sharply higher, leaping 2.5%, while the euro gained 0.52% to $1.3819.
The crisis in Europe has already begun impacting U.S. banks. MF Global, previously a major player in the derivatives market, filed for Chapter 11 bankruptcy protection less than a week after reporting a $6.3 billion exposure to European sovereign debt. Investment bank Jefferies (NYSE:JEF) shares plunged 20% on Thursday due to concerns about its own exposure. However, its stock raced back and even briefly turned positive after it released a statement saying it has "no meaningful net exposure" to these assets.
Attention to Shift Back to U.S.?
The U.S. economy is also coming squarely into focus, as the government's all-important jobs report is on tap for Friday. Economists expect the report to show the unemployment rate stuck at 9.1% in October as the economy struggled to add jobs in light of strong headwinds.
Ahead of that report, the government said new claims for unemployment benefits fell to 397,000 last week from 406,000 the week prior. Economists were predicting a drop to 400,000.
Meanwhile, the Institute for Supply Management's non-manufacturing PMI gauge dipped to 52.9 for October, compared with 53 in September and consensus estimates of 53.5. Readings above 50 point to expansion, while those below indicate contraction.
Separately, the government said factory orders rose 0.3% in September from the month prior, besting the 0.1% drop that analysts forecasted.
Energy closed mostly higher. Light, sweet crude rose $1.56, or 1.69%, to $94.07 a barrel. Wholesale RBOB gasoline fell 2 cents, or 0.74%, to $2.61 a gallon.
Gold jumped $35.50, or 2.1%, to $1,765 a troy ounce. Yields on government debt ticked higher. The 10-year Treasury note yields 2.058% from 1.987%.
Corporate Movers
Kraft (NYSE:K) slumped almost 8% amid disappointment over its steeper-than-expected 17% slide in third-quarter earnings and lowered guidance. Even the more optimistic end of the new range would trail the Street's view.
Qualcomm (NASDAQ:QCOM) raced 7% higher a day after reporting a 22% rise in quarterly profits that exceeded estimates. The mobile chip maker also issued a bullish guidance for its new fiscal year.
Foreign Markets
European blue chips rose 2.5%, the English FTSE 100 rose 1.2% to 5,552 and the German DAX jumped 2.8% to 6,132.
In Asia, the Japanese Nikkei 225 dropped 2.2% to 8,640 and the Chinese Hang Seng tumbled 2.5% to 19,243.