Economic Round-Up: Merkel’s Support for Euro Soothes Investors Nerves

on Aug 17, 2012
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German Chancellor Angela Merkel soothed investor nerves by voicing continued dedication to support for the euro. Market confidence was lifted on Thursday (August 16), after Merkel said at a joint press conference with Canadian Prime Minister Stephen Harper in Ottawa that she supports the European Central Bank President Mario Draghi’s pledge last month to do “whatever it takes” to save the euro.

Merkel reiterated her commitment to resolving the Eurozone debt crisis, supporting the efforts of the ECB to buy the bonds of troubled members. The proposed move aims to bring down yields and make borrowing for countries like Spain and Italy financially tenable. According to Merkel, such a move is “completely in line” with the views of the bloc’s members. Investors and political leaders cheered the news, as so far Germany was believed to be amongst the opponents of that particular ECB pledge.

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!m[](/uploads/story/268/thumbs/pic1_inline.png)On Friday (August 17), financial markets rose as investor sentiment turned positive amid the increased optimism that Merkel would step up the measures to alleviate the debt burden faced by the Eurozone and revive the momentum of economic growth. The markets were further cheered by signs that the US economy is gaining some traction, particularly in regards to the country’s troubled housing market. The residential building permits rose to 812,000 from 754,000 rate in June and 746,000 rate in July, the Department of Commerce reported on Thursday (August 16). This recent four-year high is showing signs that the US housing industry may improve in the second half of the year.

On the back of the latest boost for the markets, the FTSE All-World equity index was up 0.1 per cent to its best level since the start of May, having gained 9.3 per cent in just 11 weeks. The FTSE Eurofirst 300 gained 0.2 per cent, a 13-month high, while in the US, the S&P 500 Index rose to its highest level since early April, adding 0.7 per cent, to 1,416. The Dow Jones Industrial Average rose 0.7 per cent, to 13,250, while the FTSE Asia Pacific index is up 0.3 per cent, close to its healthiest level in four months. The Asia-Pacific region however was lagging its peers due to a dichotomy that is causing some traders to question the clarity of the broader bullish narrative. And while China and Japan, the world’s second- and third-biggest economies and also neighbours are closely correlated, their stock markets performed displayed differing trends. On Friday, Tokyo’s Nikkei 225 soared 0.8 per cent, while the Shanghai Composite was up just 0.1 per cent.

Merkel’s supportive comments for the euro also helped to boost the single currency. The euro bought $1.2361, 0.1 per cent up from $1.2358. The dollar also won some support from the new US economic data, but the index was little changed. Meanwhile gold rose for a second day, posting its biggest rise in almost two weeks, trading up 0.7 percent at $1,614.10 an ounce.

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