Thursday 6 September 2012

Super Mario powers up the markets with bond purchase program!

FTSE 100 @ 5777.34, +119.48 (+2.11%).
MIB @ 15780.32, +652.24 (+4.31%)
IBEX 35 @ 7862, +368 (+5.91%)

 So the ECB President continues to show that he is indeed a man of action (unlike his neutral predecessor), and, in his comparatively short tenure (v. the sovereign debt crisis), appears to be trying to deliver on his promise to "do whatever it takes to preserve the Euro", by announcing the ECB's intention to intervene in the short term bond markets (1 - 3 years) with an "unlimited bond purchase program".
"Draghi said that the purchases, known as Outright Monetary Transactions, will “enable us address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro.” (London close: Markets celebrate ECB bond-buying plan).

Crucial to perception of the ECB's determination is the "unlimited" aspect of the program which seems fully intended to deter speculators.

More eagerly awaited than the upcoming summit, the ECB President's announcement today, coupled with comments by German Chancellor Angela Merkel that appeared to support the unlimited bond purchase plan as being within Draghi's mandate, was enough to push the FTSE to a 119 point gain (2.11%).
Better still were the respective 5.91% and 4.31% gains in Spain and Italy as the most likely and immediate beneficiaries of the program.

So lots of exuberance and expectation in the market jumps today which itself might be enough to keep the borrowing costs of Spain and Italy in check.
What Mario Draghi does appear to have cottoned onto is that perception is often reality, or reality is often perception, and almost from his first day on the watch the ECB President has not shied away from the Euro conundrum and has at times seemed to be the one man intent on delivering more than words and platitudes.

My own portfolio benefitted to the tune of 1.74% today with the biggest individual gain of 5.31% coming from Aviva, as you would expect, given the nature of the announcement and Aviva's own speculated exposure to European sovereign debt.

Aviva @ 344.90p, +17.40p (+5.31%)

Its still early days but today's gains feel much better than the scalpings that some of my portfolio holdings have taken in the last few days with:
- Rolls-Royce on concerns that airlines might be belt tightening (http://www.bloomberg.com/news/2012-08-23/eads-rolls-royce-fall-on-qantas-decision-to-cancel-boeing-787s.html), 
- Vodafone on broker Bernstein downgrade to market perform, and then,
- BP following news reports that the US Dept of Justice is proposing to "throw the book" at BP with a charge of gross negligence contributing to the Macondo Gulf of Mexico disaster (War of words heats up ahead of BP's court case).
And whilst the FT reports that the rig owner, Swiss owned Transocean, also remains implicated it seems bizarre that the contracted company responsible for the allegedly incorrectly mixed cement, Halliburton, does not seem to be?

 At least all 3 took part in today's rally.

Rolls-Royce @ 834p, +6p (+0.72%)
Vodafone @ 179p, +2.5p (+1.42%)
BP @ 431.45p, +7.6p (1.79%)

But, as already mentioned, it is early days (no action yet!), and far too early to know if this is the turning point for the Euro but, the 6th September 2012 could yet go down in the history books as the day that Super Mario drew a line of no retreat and rallied his resources to rescue the Euro.
For myself I only hope that the reality matches the renewed expectation and puts a much needed first foundation in place for a return to economic stability.

Posted by MAd at 11:30
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