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12 January 2011

Markets Rally After a Successful Portuguese Debt Auction

Written by dslmpartners
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Global equities remained firm after US stocks rallied on solid earnings and a slight easing in euro zone tensions. In Asia, stocks rose sending the MSCI Asia Pacific up 0.9%, its first advance in four days. However, Japan's Nikkei was flat. In Europe, stocks advanced for a second day with the Euro Stoxx up 0.9%, boosted by financials. The DAX was up 1.82% while the CAC was up more than 2%. The successful bond auction in Portugal also buoyed financials shares in Spain (financials up 5.6%) and Portugal (financials up 1.8%). Meanwhile, the Dax is up nearly 1.2% while the FTSE trailed gains in other European bourses, up only 0.5%. In the US the markets were lead higher by bank stocks which pushed equities higher. JP Morgan's announcement that it would increase its dividend propelled stocks.

Peripheral bond yields are mostly lower after a successful auction by Portugal today. The country sold EUR650 million of bonds due in 2014 at a yield of 5.396% (vs. 4.041% in October) and a bid to cover of 2.63, and sold EUR599 million of bonds due 2020 at a yield of 6.716% (vs. 6.806% in November) and a bid to cover ratio of 3.2. The total came in larger than the indicative amount between EUR750 million and EUR1 billion, and while borrowing costs fell slightly for the longer tenor, the rate paid remains unsustainable. Tomorrow, Spain plans to sell up to EUR3 billion bonds due in 2016, while Italy plans to sell up to EUR3 Billion 3% bonds due in 2015 and up to EUR3 billion 4.5% bonds due in 2026. Despite the relative calm today, the market is viewing a Portuguese bailout as a done deal. The Euro rallied more than a big figure as tensions eased on the European currency.

In its latest beige book, the Fed said all of its 12 districts reported some form of strengthening in economic activity in November and December. However, the expansion was "moderate" as strength in the manufacturing and retail sectors were offset by weakness in real estate and financial services.