3 Reasons Markets Rallied as Italy Sought Help from China

Markets closed up on Wall Street today: Dow +0.63%, S&P +0.70%, Nasdaq +1.10%, Oil +1.72%, Gold -2.40%.

On the commodities front, Oil (NYSE:USO) climbed to $88.74 a barrel. Precious metals declined, with Gold (NYSE:GLD) falling to $1,814.80 an ounce while Silver (NYSE:SLV) fell 3.19% to $40.30 an ounce.

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Today’s markets were up because:

1) Greek default. U.S. markets began the day sharply lower than where they closed as Greek default looked imminent. The country has yet to institute the necessary austerity measures to receive its next tranche of aid, without which they will surely default in their debt. Germany began working on a plan to hedge against losses that could be incurred by such a default, as Germany is the single-largest holder of Greek debt, with $14.1 billion in Greek government bonds.

2) Banks. Today CEO Brian Moynihan announced that Bank of America (NYSE:BAC) planned to cut $5 billion in annual costs by 2013, later announcing that it would do so partly by cutting 30,000 jobs. Bank of America’s shares started the day up but began to fall in the afternoon. It may be that investors took to heart Citigroup’s (NYSE:C) forecast that U.S. banks’ profits would decline an average of 45% during the third quarter, or maybe it was general anxiety over the global economic outlook and banks’ exposure to Greek debt, which had french banks Société Générale, BNP Paribas, and Credit Agricole all trading significantly lower today. Bank of America was down late in trading, as was JPMorgan (NYSE:JPM), Citigroup, Goldman Sachs (NYSE:GS), Wells Fargo (NYSE:WFC), and Morgan Stanley (NYSE:MS). But when markets rallied in the last half hour of trading, all but Morgan Stanley turned positive.

3) Italy. Markets were set to close the day down, rallying in the final few minutes of trading as news emerged that Italy had turned to China for help weathering its debt crisis. Italy is asking the cash-rich country to buy Italian bonds in order to hedge against default. Though no decision has been made, Chinese government officials met in Italy last week to discuss the possibility of buying significant quantities of Italian bonds and investments in strategic companies. As Europe’s third-largest economy and the largest of those facing a serious debt crisis, news that Italy could soon be in the clear, and furthermore, that the ECB, France, and Germany would not have to bear the brunt of its bailout, gave stocks a remarkable last-minute jump to end the day up.

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