3 Reasons Markets Were Up As Central Banks Stepped in to Boost Dollar Liquidity in European Banks

Markets closed up on Wall Street today: Dow +1.66%, S&P +1.71%, Nasdaq +1.34%, Oil +0.38%, Gold -1.83%.

On the commodities front, Oil (NYSE:USO) climbed to $89.25 a barrel, while precious metals declined, with Gold (NYSE:GLD) falling to $1,793.10 an ounce while Silver (NYSE:SLV) fell 1.57% to $39.90 an ounce.

Hot Feature: U.S. Gas Imports Expected to Decline 5% in September

Today’s markets were up because:

1) Banks. The European Central Bank, the U.S. Federal Reserve, and three other major central banks all agreed to step in to boost dollar liquidity for European banks. The move comes amid signs that banks are pulling back on lending to other banks as the European Union struggles to resolve sovereign debt issues. The news gave shares of French, German, and Spanish banks a boost, and even spilled over to U.S. banks. Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) all shot higher today, as did shares of France’s Société Générale and Crédit Agricole, both of which had their credit ratings downgraded by Moody’s Investors Service on Wednesday.

2) Greece. A more positive outlook on Greece continued yesterday’s rally in global markets. Shortly before U.S. markets closed on Wednesday, Greece’s Prime Minister George Papandreou reiterated his government’s commitment to instituting the deficit reductions required as part of its two bailouts. Both German Chancellor Angela Merkel and Papandreou assured the public that Greece leaving the 17-nation euro zone was not an option being considered, while Merkel and French President Nicolas Sarkozy said in a joint statement that, “Putting into place commitments of the [bailout] program is essential for the Greek economy to return to a path of lasting and balanced growth.” The news had European markets opening higher hours before U.S. markets would open, and kept them there throughout the day.

3) Economy. It seems good news from Europe outweighs bad economic news at home. Today the Department of Labor announced that consumer prices had climbed twice what economists had predicted in August, while initial jobless claims jumped last week to their highest level since June. The Federal Reserve Bank of New York’s report on manufacturing in the region contracted more than expected in September, while its general economic index dropped to its weakest reading since November 2010, indicating that companies in the region covered by the New York Fed’s manufacturing index are cutting back. The consumer-price report also showed that hourly earnings fell in August in their biggest one-month decline since July 2008, while the cost of energy, food, healthcare, and shelter all rose. 

BONUS: Consumer Prices Grew More Than Expected in August

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