Stock Indices charge higher on positive ADP jobs report and Trichet’s move to suspend Portugal’s minimum rating requirement
City Index July 7, 2011 10:16 PM
<p>Stock indices on Thursday charged higher by around 1% after US ADP employers added more than double the amount of private jobs than the market […]</p>
Stock indices on Thursday charged higher by around 1% after US ADP employers added more than double the amount of private jobs than the market had expected in June, boosting expectations for a strong reading in tomorrow’s US payroll figures.
There is no doubt that today’s ADP employment reading may have ultimately raised expectations for tomorrow’s non-farm payrolls. But in itself, it is a very positive reading and boosts optimism that the recent growth pressures the US has faced may just be a soft patch, reaffirming Ben Bernanke’s ‘temporary’ stance.
Trichet draws division between the ECB and Ratings Agencies
It is however Jean Claude Trichet’s press conference that will inevitably grab the headlines. Earlier in the day, the ECB had voted to raise interest rates by 25 basis points to 1.5%, a move widely anticipated by the financial markets for some weeks. In his subsequent press conference, the ECB President announced that the ECB will suspend its minimum credit rating threshold for Portugal until further notice. This was undoubtedly in reaction to the Moody’s downgrade of Portugal’s credit rating to junk and raising of the potential need for a second bailout. The move by Moody’s triggered a hit on Portuguese bonds earlier this week, with the two-year bond yield rallying to record levels above 17%.
Today’s move by Trichet effectively frees the ECB to lend to Portugal more loosely, reaffirming its support to the nation. It could also be a defensive move in anticipation of further action by ratings agencies in the near future to protect the indebted country from an escalation in its existing financing problems.
Traders await further details of the decision later in the session with the ECB set to disclose more details.
Make no mistake, there is a war going on between ratings agencies and European governance. Bodies like the ECB and other finance ministers are calling into question the mere credibility of ratings agencies, at a time when investors naturally look to them for risk transparency as Europe remains deep within a sovereign debt crisis. The markets reaction today shows appreciation for Trichet’s support to Portugal, with the price of the euro and stocks rallying, in the face of a volatile and potentially unpredictable few months for credit ratings agencies as they assess the impact of a potential second bailout for Greece.
Trichet also gave ratings agencies a sincere warning by stating that a selective default or credit event must be avoided at all costs for Greece. This was a direct statement at those ratings agencies such as the Standard and Poor who insinuated that a voluntary rollover of Greek debt by bond holders could be called a selective default.
FTSE targeting year high of 6105
It was the ADP employment report and ECB move that helped to push the FTSE 100 through resistance levels at 6005. The break above this level now helps the UK Index to try and retest the years high of 6105. A key resistance level for the FTSE lies above the year high at 6117 and traders may wait for a continued break above this level before adding to their long positions.”