Grounds for optimism.

27th October 2011

Ian Copelin, Investment Director, my wealth, comments, “The FTSE-100 Index jumped 2.89% today (27 October 2011) to 5,713.82, extending the recent rally – the index is headed for its fifth week of gains and has now rebounded 17.36% (845.22 points) from the intra-day low on 4 October 2011.

Today’s rally has been led by financials and miners, after the euro area’s leaders persuaded bondholders to take a 50% write-down on Greek debt and expanded the European Financial Stability Facility (the bailout fund) to €1 trillion in a bid to contain the debt crisis that had threatened to spread to Italy and Spain.  Barclays advanced 17.6%, while Aviva jumped 8.84% and Xstrata gained 9.28%.

Measures also included a recapitalisation of European banks and a potentially bigger role for the IMF in strengthening the bailout fund.

However, leaders tiptoed around the broader role of the politically independent ECB in keeping the euro sound, making no mention of its bond-purchase program in a 15-page statement.  The Frankfurt-based central bank was said to be purchasing Italian debt today – Italy plans to auction around €8.5 billion of bonds tomorrow.

Although a lot of details are still to be fleshed out, it is a step in the right direction as the overall headlines are positive.

Elsewhere, the US Commerce Department announced that the US economy grew at a 2.5% annual rate in the third quarter (up from 1.3% in the second quarter and its fastest pace in a year) as Americans reduced savings to boost purchases and companies stepped up investment in equipment and software.  It was only a few weeks ago that the market was fearing that the US economy would slip back into a recession!”