Report that central banks were prepared to step in if Greek elections cause ‘tumultuous trading’ guided the benchmarks to a finish in the green. The report came amidst lingering tension over Europe’s financial health, a rise in domestic initial claims and consumer prices suffering their biggest decline in over three years. This discouraging data in combination with the worsening condition of global economic health made the case stronger for central banks to step up monetary measures.
The Dow Jones Industrial Average (:DJI) soared 1.2% or 155.53 points to close trading at 12,651.91. The Standard & Poor 500 (S&P 500) also gained 1.2% and finished yesterday’s trading session at 1,329.10. The tech-laden Nasdaq Composite Index surged 0.6% and was up to 2,836.33. The fear-gauge CBOE Volatility Index (:VIX) slumped a sharp 10.7% to settle at 21.68. Consolidated volumes on the New York Stock Exchange, Nasdaq and American Stock Exchange were roughly 6.6 billion shares, lower than the 20-day moving average. Advancing stocks dominated decliners on the NYSE; as for 69% that gained, only 29% stocks ended lower.
Markets had opened in the green and mostly stayed afloat in positive territory. But following a Reuter’s report which said central banks were ready to bolster economic measures following Greece’s elections, the benchmarks enjoyed a steep increase. The Dow jumped by as much as 202 points at one point, before moving down marginally. Such was also the case for fellow benchmarks, which touched their day’s highs following the news. Nasdaq benefited the most from this report, as it had moved into negative territory briefly, and the report boosted it sufficiently for a green finish.
Coming to the details of the report, Reuters noted: “Central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the outcome of Greek elections on Sunday causes tumultuous trading, G20 officials told Reuters”. Reuters quoted a G20 aide as saying that: "The central banks are preparing for coordinated action to provide liquidity". Thus, with increasing hopes of economic measures coming into force, benchmarks moved upwards.
The report also came at a time when domestic investors’ hopes for further monetary easing were raised recently. Earlier this week, Chicago Federal Reserve Bank President Charles Evans said he supports actions to accelerate jobs growth. Last week, the Atlanta and San Francisco Fed presidents had fuelled hopes of another round of economic stimulus, but Fed Chairman Ben Bernanke dashed all those hopes a few days later. For now, investors all eyes will be on the Federal Open Market Committee next week
With European concerns already weighing on investors, U.S. economic readings provided no respite either. Initial claims jumped and consumer prices declined. However, a few onlookers noted that the dismal scenario made the case for central banks to introduce further measures stronger to combat sluggish economic conditions.
According to the U.S. Department of Labor, initial claims increased 6, 000 from the prior week’s revised figure of 380,000, to move up to 386,000 in the week ending June 9. The figure was significantly higher than consensus estimates of 372, 000. But for the previous week, initial claims have been trending up steadily since late April. Thus, labor market conditions seem difficult and this key indicator of the economy clearly reflects its sluggish state.
Additionally, the U.S. Bureau of Labor Statistics noted that the Consumer Price Index for All Urban Consumers (CPI-U) moved down 0.3% in May. The CPI dropped by the most since December 2008. The report also said: “The gasoline index declined 6.8 percent in May, leading to a sharp decrease in the energy index and the decline in the all items index. The indexes for natural gas and fuel oil declined as well, though the electricity index increased… The index for all items less food and energy rose 0.2 percent in May, the third consecutive such increase”.
Coming to sectoral stocks, the energy sector was a major gainer and the Energy Select Sector SPDR (XLE) jumped 1.6%. Among energy shares, Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP), Western Refining, Inc. (NYSE:WNR) and Halliburton Company (NYSE:HAL) jumped 1.8%, 1.9%, 1.1%, 2.3% and 1.6%, respectively.
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