Market sentiment improved amid hopes of additional stimulus from central banks. In the US economic data released was disappointing. However, investors' interpretation was that this would force policymakers to implement QE3 or at least some kinds of monetary easing measures to bolster the recovery. In the Eurozone, the key event would be on the general election in Greece on Sunday. Yet, the focus was on a Reuters report quoting a G-20 official that the central banks are preparing for coordinated action to provide liquidity if global financial markets worsen markedly after the Greek election. Wall Street rose with the DJIA and the S&P 500 gaining +1.24% and +1.08% respectively. In the commodity sector, the front month contract for WTI crude oil added +1.56% while the equivalent Brent crude contract made little change during the day. The benchmark Comex contract for gold, though closing largely flat at 1619.6, would remain strong in the near-term amid QE3 speculations.
While concerns over the Spanish banking system heightened after Moody's downgrade, market sentiment was boosted by Germany's change in stance in the European Redemption Pact. It's unveiled that Chancellor Merkel's office has agreed to consider proposals for the 2.3 trillion euro stabilization fund after having totally rejected it in November last year. Ahead of the Greek election on Sunday, there has been news that the EU would agree to soften austerity measures imposed on the debt-ridden country. However, despite this, it is still uncertain whether the far-left party, the Syriza party, would accept the conditions if it win the election. Syriza's leader Alexis Tsipras stated that it would abandon the austerity program, a move that would force Greece to go bankrupt and the country to leave the bloc.
In the UK, the Treasury and the central bank step up measures in an attempt to loosen the credit and financial markets. Over the next few weeks, the government would launch a scheme to stimulate bank lending by offering to loan banks funds at below market rates for a period of perhaps 3 to 4 years. The BOE will also activate the Extended.
Collateral Term Repo facility which provides 6-month liquidity against a wide range of collateral. Moreover, Governor Mervyn King stated that the other effect of the euro area crisis has been to create a large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole...With signs of a deterioration in the outlook, especially in world markets, the case for a further monetary easing is growing. This signaled further asset purchases would probably be announced at the upcoming BOE meetings.
On the dataflow, the US economic indicators released were disappointing. Initial jobless claims surprisingly rose +6K to 386K in the week ended June 9. Inflation moderated further with the May CPI rising +1.7%, following a +2.3% gain a month ago. The core reading stayed unchanged at +2.3% during the month. Weaker than expected data unexpectedly lifted sentiment amid hopes of further monetary easing.