Markets Soar As Euro Zone Outlines Plans For Solving Debt Crisis

US markets opened higher on Thursday morning on encouraging earnings and economic reports, and the outline of a plan by European leaders to solve the debt crisis that has been plaguing the Euro zone.  Breaking through the psychologically important level of 12,000, the Dow Jones Industrial Average rose by 2% following a rally on Wednesday.


Led by financials and industrials, the S&P 500 saw all 10 sectors rally at the open, and the CBOE Volatility Index fell by nearly 15% and was trading near 25 by mid-morning.  Cheering the plan by Euro zone leaders to contain the region’s debt crisis and reduce Greece’s debt burden, global equities markets showed their approval of the deal with private banks and insurers to accept a 50% loss on holdings of Greek government bonds.

The Euro zone leaders will also offer credit enhancements to the private sector which will total 30 billion euros, and  leaders aim to wrap up negotiations on the package by the end of the year.  The ultimate goal is for Greece to have a second, full financial aid package in place prior to the beginning of 2012.

The package’s value was increased from the 109 billion euros deal that was struck last July to 130 billion euros according tho sources in the European union.  Although analysts pointed out the the plan was light on details, the deal sparked a rally in Asian and European markets.

Euro Zone Debt Deal And Positive Economic News Lift US Stocks

The third-quarter saw an increase in consumer and business spending, and the United States economy grew at its fastest pace in a year during this quarter, potentially creating momentum that could last throughout the rest 2011.

Although a portion of the increase in output was the result of the reversal of temporary factors that had inhibited growth, the expansion was a relief for an economy that appeared to be on the edge of another recession merely weeks ago.

The United States also saw its GDP rise at a 2.5% annual rate for the third-quarter, which, according the the United States Commerce Department would be the fastest pace in over a year, and is a large improvement over the prior quarter which saw an increase of 1.3%.

A slowdown in the Euro zone combined with the exhaustion of pent-up US demand could potentially result in a weak spot early in 2012.  In addition, the pace of the recovery is still too weak to lower a stubbornly high unemployment rate that has been stuck higher than 9% for five straight months.

The US Labor Department also reported a decline in unemployment, as weekly jobless claims fell by 2,000 to a seasonally adjusted 402,000, which is pretty much in line with analysts expectations.  Although a jump in gasoline prices seen earlier this year weighed on consumer spending, and automobile production was curbed by the disruption from the Japanese earthquake, as these constraints have eased, output has surged for motor vehicles.

As a result, after slowing to a 0.7% pace in the second-quarter, consumer spending grew at a rate of 2.4%.  This increase is in light of the fact that consumer confidence has hit levels that have not been seen since the financial crisis in 2007-2009.

Existing Home Sales Fall For Third Consecutive Month

Although the sales index was higher versus data from a year ago, pending sales of existing homes in the US fell for a third consecutive month during September, according to a report released by a real estate industry group on Thursday.  Economists had expected a 0.1% rise in pending home sales rather than a decline.

While the index is still above its September 2010 level of 79.4, the housing market continues to be restrained by weak consumer confidence and the continued tightening of lending criteria.  Every region in the country saw the September index fall from its August levels.

While the US economy is taking steps toward growth and recovery, global and domestic equity markets should have upside momentum throughout the rest of 2011, with markets maintaining a  continued focus on the results of the plan to curtail the Euro zone debt crisis.