Financial markets rebounded sharply amid expectations that European leaders will devise a plan to fix the sovereign debt crisis in the Eurozone. Wall Street jumped with DJIA and S&P 500 gaining +2.53% and +2.33% respectively. In the commodity sector, oil prices reversed early losses and ended the day adding modestly. The front-month contract for WTI crude oil climbed +0.49% during the day while the equivalent Brent crude contract closed flat. Gold slumped to a 2-month low of 1535 but then recovered and closed at 1594.8. While the increase in margin has sent gold much lower over the past few trading days, the yellow metal rose above 1600 today again as the broad market sentiment improved.
While not confirmed it's said that European leaders are planning to expand the EFSF to 595B euro and Germany is suggesting banks and private institutions to reduce Greece's debt burden by taking a bigger loss on their Greek debt holdings. News reports also said that the ECB may reintroduce purchases of covered bonds at next week's meeting while the main refinancing rate may stay at 1.5%. ECB Executive Board member Lorenzo Bini Smaghi reassured the market that the central bank would provide adequate liquidity what it's needed'.
Indeed, it's likely that the ECB will step up easing in the next meeting. At a speech at the IMF and World Bank meetings President Jean Claude Trichet warned that the risks to the EU financial system have 'increased considerably' and that the Eurozone is that 'epicentre' of such crisis. Moreover, he stated that there's data showing a 'progressive drying-up of bank funding markets'. The comments indicated that the central bank has become more concerned about the banking system than the previous meeting.
On the macro front, Germany's IFO business survey delivered pleasant surprise. Business climate index slipped to 107.5 in September from 108.7 a month ago. The market had anticipated a shaper decline to 106.5. Current assessment index fell to 117.9 (consensus: 115.5) in September from 118.1. Expectations index dipped to 98 (consensus: 97.4) from 100.1. In the US, new home sales slipped -3K to 295K in August.