Financial markets rebounded as there was more clarity in the Eurozone. Wall Street advanced with DJIA and S&P 500 gaining +0.96% and +0.86% respectively. In the commodity sector, the front-month contract for WTI crude oil soared +2.13% to 97.78 at close while the equivalent Brent crude contract gained +1.25%. Gold retreated as risk appetite returned. The benchmark Comex contract fell to a 5-day low of 1736.6 before settling at 1759.6, down -1.79%.
Purchases of the ECB sent Italian 10-year bond yield below 7%. The Treasury also successfully sold 12-month T-bills worth of 5B euro, though the rate, at 6.087%, was much higher than the previous auction of the same security. The political situation remained unclear. There were rumours that a new government will be formed by Mario Monti, a former European Commissioner, though. In Greece, an interim government has been formed with Loucas Papademos as the new Prime Minister. As mentioned in the official statement, the new government will be responsible for 'the implementation of the October 26th decisions and the economic policy related to these'.
While the market has long expected that the ECB will be the savior, Klaas Knot, Dutch Central Bank President, stated that there is 'not much more can be expected' from the ECB and 'it is now up to the governments ... to make sure the doubts about sustainability, about repayment of individual government debt are removed as quickly as possible'. Another ECB member Peter Praet also said that the ECB is not a 'lender of last resort'.
Macroeconomic data in the 17-nation region remained weak. Industrial production in Italy and France contracted -4.8% and -1.7%, respectively, in September. PMIs of both countries indicated that the situation will deteriorate further.
In the US, initial jobless claims surprisingly fell -10K to 390K in the week ended November 5, bringing the 4-week moving average lower to 400K, the lowest level since April 16. Trade deficit narrowed to $43.1B in September from an upwardly revised $44.9B in August. Exports grew +1.4% while imports merely edged up +0.3%.