Wall Street advanced yesterday, driven by European bourses which had fluctuated between gains and losses throughout the day due to news about default and bailout. Financial markets were initially pressured as WSJ said that a French bank had difficulty in USD funding. Denial of the rumor, however, sent bourses higher. Shares were supported further by the talk that China might help rescue Italy by purchasing its bonds. Yet, this was not verified and should only provide temporary boost to sentiment. Oil continued to move tracking stock markets. The front-month contract for WTI crude oil price rose to 90.52, the highest level since August 4, before settling at 90.21, up +2.29%. The equivalent, however, fell for a 4th day, losing -0.32% at close. Gold rebounded as buying interests emerged at around 1800. Resilience of the metal signals safe-haven assets are still on demand as global uncertainty heightens.
WJS unveiled a BNP Paribas executive saying that the bank could no longer borrow dollars as US money-market funds had refused to lend to it. BNP's shares slumped as much as 12% after the news. However, it rebounded sharply and ended the day with over +7% gains after the bank seriously denied the rumor. Societe Generale also jumped after CEO Frederic Qudea affirmed that the bank's exposure to European sovereign debts was 'low, absolutely manageable'. Both banks, as well as Credit Agricole, were at risk of being downgraded by Moody's due to their holdings in Greek bonds.
Financial Times said that the Italian government was in talks with China regarding a 'significant' purchase of Italian bonds as the 17-nation region's third largest economy sought to restore market confidence. Chinese Premier Wen Jiabao stated in the World Economic Forum that 'developed countries must take responsible fiscal and monetary policies' before relying on China. He stressed, 'what is most important now is to prevent the further spread of the sovereign debt crisis in Europe'. Despite speculations of Chinese buying, there were no big moves in the Italian debt auction yesterday. The Treasury sold 5-year bonds at an average yield of 5.60%, higher than 4.93% at the previous sale on July 14. The bid-to-cover ratio also fell to 1.28 times from 1.93 in July.
Greek yields continued to climbed higher. The market has now priced in a 98% chance of default in Greek debts although the government pledged to implement austerity measures as scheduled. It seems likely that sovereign crisis in the Eurozone will persist. Consumer confidence and economic developments will be dragged down further.
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