15.10 AEST, Friday 29 June 2012
EU plan provides breath of fresh air to markets
By Tim Waterer (Senior Trader, CMC Markets)
Previous experiences with EU summits had reduced expectations so much that when they announced something resembling a
plan today, the market was caught off guard.
Risk assets reacted positively to the EU’s apparent pro-activity. Equities, commodities and risk currencies all jumped
on news of the supervisory mechanism and plans to sure up the Spanish bond market.
The fact that a plan of some substance was announced by the EU came as a breath of fresh air, and the reaction of
financial market was a decisive move north.
On face value, the plan should act as a relief valve for the troubled bond markets in Europe. While it is not so
all-encompassing as to bring us anywhere near to an ‘End Game’ on the European woes, the plan does show progression from
the EU rather than the stagnation we have become so accustomed to.
The AUD came to life as did all higher yielding currencies on news of the EU plans. The AUD raced over a cent higher
with traders giving an encouraging nod of approval to the proposed measures in Europe.
The ASX200 had been trading in listless fashion up until the EU announcement which served to re-energise the market. The
materials and energy stocks which have been pummelled of late were among those to ‘make hay’ today after the rare
glimpse of good news from Europe. The spike in commodity prices in reaction to the announcement saw mining giants like
BHP and RIO have particularly good performances to end the week.
While the EU have provided an encouraging outline for their plans, the market will likely require more convincing over
coming days if the current rebound is to be sustained into next week and beyond.
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