Global markets rallied yesterday on news that European leaders worked out a 11th hour agreement at the European Summit that buys more time for Greece to implement structural changes to their economy while holding down their rising debts. The markets cheered the progress that occurred in Brussels with a strong rally. The progress made by the EU removed much of the European uncertainty that had been weighing down the markets in August and September. The Dow closed yesterday up 340 points or 2.9% while the S&P 500 increased by 43 points or 3.4 %, and the Nasdaq rose 88 points or 3.5 %.
The closely watched EU plan for Greece includes European banks holding Greek bond debt writing down 50% of their losses. Europe’s leaders also pledged to increase their rescue fund’s (EFSF) capacity to 1.4 billion Euros. Meanwhile, the European Cental Bank (ECB) agreed to maintain their bond purchasing level and the U.S. based IMF gave assurances that they would provide Greece with 2.2 billion.
The European Banking Authority projects that European banks need to increase their capital requirements to 106 billion euros. Spanish banks are being required to raise 26.2 billion euros and Italian banks 14.8 billion euros. The deadline date to secure a plan for raising their capital requirement targets is December 25.
On Thursday in the United States better than expected GDP economic numbers revealed that the U.S. economy grew in 3Q to 2.5% which is a solid improvement over the 1.3 % level in 2Q. This GDP number shows that the U.S. economy is not shrinking or entering a recession. However, the fallout of the Great Recession from 2008-2010 which caused the U.S. unemployment level to swell to nearly 10% and the housing market to crash, is still not over. The unemployment level remains stubbornly high over 9% and the U.S. housing market continues to be fragile.
In November, the U.S. will re-visit their own debt and fiscal problems once again when the Super Committee, consisting of hand picked political leaders from both political parties in Washington D.C., will be asked to make some monumental decisions about how to develop a viable plan that tackles the looming U.S. debts.
For a tangible recovery to gain traction in the U.S., resulting in more jobs being created, the housing market, a major pillar of the U.S. economy, must recover. During every solid U.S. recovery in the past, the housing market and banking sector paved the way for the market to rebound.
On deck for the U.S. market on Friday:
More economic data will be unveiled on Friday morning that will provide a further glimpse into the health of the U.S. economy even though the released data won’t be quite as poignant and significant as yesterday’s GDP numbers. Friday’s economic data includes personal spending , personal income, and the Michigan consumer sentiment index.