In the previous article we talked about the ESM ruling, if you want more detail on it click here. Here we’ll look at the market’s reaction on the ruling across the various asset classes. As mentioned previously, the ruling was largely expected, although some of the conditions imposed by the Germany’s Constitutional Court may have been less strict then expected by the market. As a consequence we got a small rally in the Euro, but after some crazy price action.
The initial release of the Court’s Ruling was scheduled for 10 AM Local time, 4 AM New York time, but the decision was delayed until 13-14 minutes after the hour. In those 13 minutes we got some wild price action in EUR/USD. See the chart below for this.
The pair opened the hour at 1.2864, rallied to 1.2880 then spiked over 60 pips lower while the decision was not yet announced. The pair rallied from a low of 1.2816 to 1.2850 and this is when the ruling was finally made public.
After some more spiky price action, EUR/USD rallied over 80 pips from that point on, reaching a high of 1.2935 before pulling back. The single currency closed the day at 1.2898, up 45 pips on the day.
We saw similar spiky price action in EUR/JPY too, although of a slightly lower magnitude. The pair was trading at 99.99 at the time of the ruling release and closed the day 42 pips higher at 100.41. The Pound behaved similarly, but with smaller spikes, the pair traded at 1.6086 pre-release and closed the day at 1.6105.
The peripheral bonds had another good day, reacting positively to the ESM ruling. The yields on the Spanish 2 year fell by 10 basis points to close at 2.824% today, a fall of 3.72%. The Spanish 10 year bond closed the day at 5.627%, its yields fell by 6.7 basis points or 1.18% in percentage terms. The Italian 2 year saw its yields decline by over 5% or by 11.7 basis points, closing the day at 2.193%. The Italian 10 year yields fell by 5 basis points to 5.029%, a fall of 0.98%. Their stock markets also closed the day higher, Spain’s IBEX gained 0.78% today and closed just shy of the 8,000 mark, at 7,992. Italy’s MIB closed the day 1.19% higher at 16,419.
The stock markets around the world also closed mostly up, the Euro Stoxx 50 ended the day 0.28% higher. The German Dax closed the day 0.46% higher. In the States, the Dow Jones gained only 0.07% on the day, while the S&P closed up by 0.21%.