European markets staged a major rally after EU leaders made progress on addressing the sovereign debt crisis at yesterday’s big summit.
CAC 40: +6.21%
FTSE 100: +2.68%
In fact, the DAX is now up a full 25% since its low on September 12, although it’s still down on the year.
Banks across Europe also made remarkable gains today, after months of steady losses.
Credit Agricole: 22.50%
BNP Paribas: 16.49%
Deutsche Bank: 14.15%
Royal Bank of Scotland: 9.89%
Progress from the EU summit overwhelmingly exceeded negative media expectations that next to nothing would get done.
But on the whole, we’re not convinced yesterday’s progress really met overwhelm long-term investor expectations. Further, news of 50% bank haircuts can’t be good for banks in the long term, recapitalizations or no. Banks will be forced to write down more than double what they expected on Greek bonds, and €106 billion ($147 billion) still doesn’t seem like enough to recapitalize banks sufficiently and bolster markets in the long term.
We can only wonder how long this rally might last.