Greek Bailout Plan Gives World Markets a Boost
With a new rescue package for Greece at least temporarily allaying concerns that the sovereign debt crisis will spread and contaminate other economies, world stock markets jumped on Friday to a two-week high. The euro and oil prices also rose, but the dollar fell (NYSE:UDN) as Obama and Congress remain unable to agree upon a deal to raise the debt ceiling.
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Thursday European leaders held an emergency summit where they agreed upon a Greek aid package giving the country 109 billion euros of government money, plus as much as 50 billion euros to be raised by private sector buyers of Greek bonds. The European Financial Stability Facility was granted the ability to buy bonds on the secondary market, as well as lend governments money to recapitalize banks. Investors seem relatively unconcerned that Fitch said it would declare Greece as being in restricted default on the terms of the new deal as European markets climb.
Also getting a boost today are U.S. stock futures, including U.S. crude, which rose 0.2% to $99.34 a barrel. Greek, Irish, and Portuguese bond yields tumbled, with 10-year notes down 100 basis points, 49 basis points, and 45 basis points, respectively.
In Washington, discussions on a new deficit-reduction plan continue. While a new bipartisan plan that would include up to $3 trillion in spending cuts while leaving tax reform relatively alone is currently on the table, lawmakers seem no closer to making a deal. The main issue of contention is a “tax increase” that would do away with certain loopholes and tax breaks for the wealthy, with Democrats vehemently in favor and Republicans vehemently opposed. However, yesterday investors seemed to be working on the assumption that the deal was near at hand, encouraged by a New York Times article that stated the same, though the White House has denied it.