Markets Surge on EU Response

Includes: DIA, IEV, QQQ, SPY, VGK
by: Market Blog

By David Berman

The European Union has come up with an unprecedented coordinated response to the spiralling debt crisis, and early indications on Monday morning suggest that investors are on board with the plan: Global stock markets and U.S. futures surged, potentially erasing all of last week's troubling losses.

Futures for the Dow Jones industrial average were up 379 points or 3.7 per cent, with about two and a half hours before markets open. Futures for the broader S&P 500 were up 48 points or 4.4 per cent.

In Europe, the UK's FTSE 100 was up 4.8 per cent and Germany's DAX index was up 4.5 per cent in afternoon trading. In Asia, Japan's Nikkei 225 index was up 1.6 per cent in overnight trading.

On Sunday, the EU led a coordinated response – characterized by French President Nicolas Sarkozy as a “systemic response” to a “systemic crisis” -- to the region's debt crisis by agreeing to a 750-billion euro ($955-billion U.S.) fund that will be made available to rescue any European economies that run into trouble.

The response includes 250-billion euros from the International Monetary Fund, as well as an agreement from the U.S. Federal Reserve to reopen swap lines to allow the free flow of dollars. The European Central Bank, which had been criticized last week for its silence on the debt crisis, is also playing a role here, saying that it will buy euro zone government bonds.

The moves are a huge relief to investors. Last week global stock market indexes were clearly on edge, with a North American stock market glitch adding to the woes and leaving major indexes with some of their biggest losses since the days of the financial crisis and ensuing bear market – even as corporate earnings and economic reports continued to point to an economic rebound.

This latest response from governments and central banks is bound to elicit another round of head-shaking though. Some observers are already concerned by the degree to which official bodies are guaranteeing risky investing behaviour, and this move amounts to yet another bailout for another failed bet.