• Inside Labour

    The 'casualisation' of the workforce is often a ploy to cut costs, says Terry Bell.

  • When drones go dancing

    Drone technology's future is about to come to life in Cape Town, says Arthur Goldstuck.

  • Testing times for Matona

    New Eskom CEO Tshediso Matona has his work out cut out for him, says Mzwandile Jacks.

Data provided by iNet BFA
Loading...
See More

Markets relieved by German court ruling

Sep 12 2012 13:02 AP

Related Articles

German court clears euro rescue fund

Asian shares rise before German ruling

Asian shares fall, eyes on German ruling

Asian shares inch up

Rand firmer as euro strengthens

Rand stronger on euro

 
London - Investors breathed another sigh of relief on Wednesday, sending the euro above $1.29 for the first time in four months after Germany's highest court rejected calls to block the Europe's permanent rescue fund, removing another uncertainty from Europe's efforts to solve its debt crisis.

Even though the decision by the Federal Constitutional Court comes with certain conditions, it means the European Stability Mechanism (ESM) can be signed off by the country's president and come into force by early next year.

The euro was the big beneficiary from the decision, climbing 0.5% on the day to a high of $1.2920, the first time it's been above the $1.29 threshold since May 14.

Stocks also got a boost, with Germany's DAX up 0.9% at 7 375 and the CAC-40 in France 0.7% higher at 3 562. The FTSE 100 index of leading British shares was 0.2% firmer at 5 805.

The fund is important because it can loan money to cash-strapped governments. It's also due to play a key role in the recent bond-buying plan unveiled by European Central Bank (ECB) president Mario Draghi, the main reason behind the turnaround in market sentiment over Europe over the past few weeks.

"With the Germans now seemingly fully committed to the ESM, and the Draghi plan in force, hopes are high for an easing of the eurozone crisis," said Chris Beauchamp, market analyst at IG Index.

The borrowing rates of countries at the front line of Europe's debt crisis eased further on Wednesday, with the yield on Spain's 10-year bonds down 0.07 percentage point to 5.60% and Italy's falling 0.03 percentage points to 4.98%. Not long ago, both countries were seeing this key interest rate above 7%, widely-considered as unsustainable in the long-run.

Despite the positive reaction in the markets, investors think Europe is a long way from being fixed. Greece still has to convince creditors that it deserves more bailout money, while
Spain appears undecided about whether to tap the ECB's bond-buying facility.

Also, there are real doubts that the ESM is fit for purpose. The €500bn available would not be enough in the event that Italy or Spain needed to be bailed out like Greece, Ireland and Portugal.

"In the event of a Spanish and Italian bailout, even with ESM ratification, the resources available fall short of what is required for such bailouts," said Neil MacKinnon, global macro strategist at VTB Capital.

The next big event on the horizon for markets will be Thursday's decision by the US Federal Reserve on whether to back another monetary stimulus. Expectations that it will do so have risen lately following a run of soft economic data.

Many analysts remain sceptical that the Fed will do anything more than reassert that it's willing to do more, especially as a number of its policymakers may be reluctant to do something dramatic in the middle of the US presidential campaign.

Wall Street was set for gains, with Dow futures and the broader S&P 500 futures up 0.5%.

Earlier in Asia, Japan's Nikkei 225 index rose 1.7% to close at 8 959.96. Hong Kong's Hang Seng added 1.1% to 20 075.39 and South Korea's Kospi gained 1.6% to 1 950.03.

In mainland China, the Shanghai Composite Index gained 0.3% to 2 126.55. The Shenzhen Composite Index gained 0.5% to 901.29.

Oil prices edged higher too, with benchmark crude for October delivery up 63 cents to $97.80 per barrel in electronic trading on the New York Mercantile Exchange.

*Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.
NEXT ON FIN24X

 
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Add your comment
Comment 0 characters remaining
 

Company Snapshot

We're talking about:

Small Business

Expanding your business requires capital and banks have stringent lending criteria in place.
 

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...