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Merkel Comments Give Bounce to Stocks

Wednesday, 16 May 2012 | 10:09 AM ET

Comments from German Chancellor Angela Merkel that she wants Greece to stay in the euro zone helped give a lift to oversold equitiesand curbed some buying interest in Treasury bonds.

German Chancellor Angela Merkel
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German Chancellor Angela Merkel

The stock market was also ripe for a reversal after two days of selling on concerns that Greece would leave the euro zone.

The euro was slightly firmer on the comments Merkel made in an exclusive interview with CNBC’s Silvia Wadhwa. Merkel, after meeting with France’s president Francois Hollande Tuesday, had also said she wanted Greece to stayin the euro zone but she elaborated Wednesday.

“Just like Jean-Claude Juncker, I have the will, the determination, to keep Greece in the euro zone. I think it will be good for Greece and good for all of us,” she told CNBC. "We have to say that then we all have to rely on each other."

She said there were commitments on both sides. On one, there's "the solidarity we've shown towards Greece and on the other hand, the fulfillment to the commitments to the memorandum. These are two sides of one and the same coin and they belong together," she said.

Merkel's comments helped reverse losses in stock futures ahead of the Wall Street open. Stocks were also lifted by better than expected housing starts. Industrial production also was better than expected, rising 1.1 percent, well above the expected 0.6 percent.

“We reached the levels people thought were worth selling,” said CRT Capital chief Treasury strategist David Ader. The yield on the 10-year Treasury fell below 1.75 in early trading and after Merkel’s comments had risen to 1.81 percent.

Yields on Spanish and Italian debt also fell, and German bund yields rose to session highs.

“(The bond) market and equities have been trading on the view that Greece is going to leave,” said Ader, noting Merkel had just marginal impact. If Merkel is giving an indication that the euro zone is willing to make efforts to keep Greece in the zone, “that would be a risk on story.”

Merkel more than once emphasized European "solidarity" in her comments to CNBC, and when she met with Hollande Tuesday she suggested the EU approach Greece with proposals to boost its economy.

"Europeans can be very proud, justly proud, of what we’ve achieved. We stand up for another when a country gets into difficulty. But we also know each country must do his-or-her own homework. But the European idea is the guiding principle, so that we can give solidarity," Merkel told CNBC.

One bond market strategist said the fact that Merkel and Hollande, a leftist, appeared to show unity was also a positive for the markets.

The Dow opened higher, scoring double digit gains. “We’re oversold and the (Greek) election is weeks off. The next spark will be whether you get a run on the banks, with the long ATM lines and all that,” said Art Cashin, director of floor operations at UBS.

Stocks sold off in the final hour of trading Tuesday after reports that Greek depositors had withdrawn 700 million euros from Greek banks on Monday alone. A source told CNBC that those withdrawals have slowed.

Cashin said the reversal in stock futures was as much to do with the market being technically oversold.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • Sharon Epperson is CNBC's senior commodities and personal finance correspondent.

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.

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