The European Council Summit at the end of June surpassed the low expectations of investors.
With Cyprus the 5th country to officially ask for financial aid, the pressure was intense. Markets were pleasantly surprised that EU leaders agreed to address the flaws in their bailout programs, move closer toward a banking union, ease repayment rules for Spanish banks and relax aid conditions for Italy.
The immediate reaction was the biggest rally in Spanish bonds and the euro currency for the year. But while the Summit announcements are a good first step, how long will this relief last?
Follow through will be key. The ball is now in the European Central Bank’s camp as investors look for them to cut rates at their July 5th meeting and hopefully become more active buyers of Spanish and Italian debt.
For now, Spanish bond yields are dropping, oil and gold are surging, and global stocks are finally moving higher to bring to end what has been a very difficult quarter for risk assets.
With all eyes on Europe, North American economic data didn’t get much hype last week, but there was a more positive tone. U.S. durable goods orders in May were above market expectations for its first gain in three months. Pending Home Sales for May jumped 5.9% sequentially versus 1.5% consensus and Case-Shiller Home Price data was down, but less than expected.
The second quarter was especially unkind to Research in Motion. RIM reported a quarterly loss five times bigger than was expected and once again, delayed its Blackberry 10 product launch.
Shares have fallen 45% since March and the Canadian tech company risks slipping further into obsolescence.
Oil surged at the end of the week from its lowest level in nine months but the move only trimmed oil’s biggest quarterly declined since the post-Lehman, fourth quarter of 2008.
Gold rose the most in a month but has still dropped 4.5% since the end of March. Gold is heading for its worst quarterly drop in almost four years. The Canadian dollar extended its weekly advance following news the Canadian economy grew more than expected in April. GDP growth is tracking 2% on a year over year basis.
Click through to read about the trading week ahead.