Global indices, oil move up on ECB rate cut, Greece hopes

Global stocks and crude oil rallied on Thursday on rising hopes Greece will abandon plans to hold a referendum over a euro-zone bailout and after the European Central Bank cut interest rates in a surprise move.

Greece’s teetering government backed away from a proposed referendum on staying in the euro, while European leaders talked for the first time of a possible Greek exit to preserve the single currency.

The Greek moves to ditch the referendum buoyed optimism, as they reduced the chance of a disorderly default, analysts said. The ECB rate cut and a drop in US jobless claims also helped feed a bid for riskier assets.

Trading was volatile across asset classes as markets were rocked by headlines on Greece and comments from new ECB President Mario Draghi, who said the euro zone could enter a “mild recession” later this year.

Draghi spoke following the ECB’s unexpected interest rate cut, by a quarter point to 1.25 percent.

“Right now the market just reacts to whatever rumour and whim is out there, going back and forth. What is Greece going to do? What is Germany going to do? What is Merkel saying, what is the meeting doing?” said Cliff Draughn, chief investment officer at Excelsia Investment Advisors in Savannah, Georgia.

“Sooner or later Europe will solve the problem. There is going to be some pain in between, but they will solve the problem,” Draughn said.

Stocks rose across the board in Europe and euro zone banks were among the standout gainers, up 3.3 percent.

MSCI’s all-country world index rose 1.4 percent and the FTSEurofirst 300 index of top European shares closed up 1.9 percent at 990.11.

U.S. stocks also bounced in choppy trade following an industry report that showed the pace of growth in the vast U.S. services sector slowed modestly in October to its lowest level since June as new orders declined.

On Wall Street, the Dow Jones industrial average was up 193.45 points, or 1.63 percent, at 12,029.49. The Standard & Poor’s 500 Index was up 21.34 points, or 1.72 percent, at 1,259.24. The Nasdaq Composite Index was up 53.26 points, or 2.02 percent, at 2,693.24.

The euro rose 0.5 percent to $1.3820 after early losses on the encouraging news out of Greece, which led investors to embrace risk.

Oil prices gained, popping above $110 a barrel.

Brent crude for December was up $1.51 at $110.85 a barrel and US crude rose $1.65 at $94.16 a barrel.

US Treasuries fell to session lows after the ECB rate cut.

“The ECB’s rate cut, while unexpected, should boost crude prices going forward,” said Anthony Rosado, an options broker at GA Global Markets in New York.

U.S. Treasury debt prices fell on the rate cut and government data that showed new claims for US unemployment benefits fell below 400,000 last week for the first time in five weeks, suggesting modest improvement in the labour market.

Benchmark 10-year Treasury notes fell 21/32 in price to yield 2.06 percent.

Reuters