The hardest-hit, most-oversold countries in the European debt
crisis rallied the most Thursday after European Central Bank
President Mario Draghi said he would "do whatever it takes" to
keep the euro zone intact.
IShares MSCI Spain Index (
) vaulted 7.35%.IShares MSCI Italy Index (
) jumped 6.43%.
IShares MSCI EAFE Index (
), tracking developed foreign markets, surged 2.86%.
IShares MSCI Emerging Markets Index (
) climbed 1.92%.
"Note that unlike the Fed in the U.S., ECB leadership has been
prone to making brash public statements in the past that did not
fully materialize into action and that this 'risk on' moment may
be as fleeting as other recent reactions," Waverly Advisors wrote
in a daily client note.
EWP and EWI both still trade below their 50- and 200-day
moving averages and so the day's strength can only be interpreted
as a countertrend rally in a long downtrend. EFA and EEM are also
trading below their long-term 200-day moving averages and have
very bearish chart patterns.
Gains in foreign markets were partially amplified by a
sell-off in the dollar against the euro.PowerShares DB U.S.
Dollar Index Bullish (
), tracking the greenback against a basket of the most widely
traded foreign currencies, dropped 0.91%.CurrencyShares Euro
Trust (FXE) shot up 1.04%.
The euro is showing nothing more than a relief rally from
deeply oversold levels and short covering, says Kathy Lien, a
currency trading expert and managing director of BK Asset
"The market really needed to hear a vote of confidence from
the head of the ECB," Lien wrote in market commentary on
BKAssetManagement.com. "His interpretation of the ECB's mandate
to save the euro at all costs led everyone to believe that the
central bank will step up their efforts to support the euro
through purchases of Spanish and Italian bonds or pushing for
sharing national sovereignty."
Economic data out of the euro zone continues to miss
expectations, with German business confidence falling to its
lowest level in more than two years. Spanish bonds yields, at 7%,
hover at unsustainable levels for the long term. Italy's
sovereign debt fell further into junk status as it was downgraded
from B+ to CCC+ by Egan Jones, an independent ratings agency.
"Egan Jones' decision reflects the growing risk of holding
euros," Lien wrote in a note on FXStreet.com.
In afternoon trade, telecom and energy stocks led theSPDR
S&P 500 (SPY) higher by 1.46%.
The S&P 500 remains range-bound between 1325 and 1380
($132.50 and $138.00 for SPY) for six weeks.
"We think downside has been limited by global easing hopes,
reasonable valuations and compelling dividend yields, while
upside has similarly been constrained by the lack of a credible
EU debt crisis endgame, slowing global growth and mounting
recession fears stemming from the looming fiscal cliff," Alec
Young, global equity strategist at S&P Capital IQ, wrote in a
market outlook released Thursday. "Assuming we see congressional
action to reduce the fiscal cliff and other tax and regulatory
uncertainties currently reducing investor confidence in 2013 EPS
forecasts and stifling P-E expansion, we think the S&P 500
can reach 1400 ($140 for SPY) by year-end."
"We see Europe remaining a head wind, but manageable if
Washington gets out of the way," Young added.
SPDR Dow Jones Industrial Average (DIA) rose 1.6%.
PowerShares QQQ (QQQ), a basket of the 100 largest
nonfinancial stocks on the Nasdaq, added 1.2%.
"We expect the summer and fall to remain volatile as Europe
continues working through its problems and the U.S. political
debate heats up in advance of the elections," Ron Muhlenkamp,
manager of Muhlenkamp Fund with $480 million in assets, wrote in
a quarterly client note released Wednesday.
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