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Daily Report for Monday October 31st 2011

October is known to be a terrible month for stock market. The stock market crash of 1929, Black Monday of 1987 and the start of the GFC in 2007 all occurred in October. However this year the market seems to have broken the curse. October was the best month for the stock market in the last ten years. October 31st closes out what has been an almost uninterrupted four week rally.

The new European plan announced on Wednesday was just what the markets were looking for. The plan calls for a three pronged strategy to deal with the crisis including increasing the European Stability Fund up to $1.4 Trillion, Europe bank capitalisations and cuts to Greece’s debt obligations. The markets strong reception demonstrated that this maybe the solution that investors were looking for. Greece is the first in line to receive support, however other countries will also benefit from the plan.

The late drop of Monday ending the golden run for the month was due to the announcement by Greek Prime Minister George Papandreou that he would be putting the new rescue package to a referendum. It is only natural however after such a strong run that the markets would pull-back a little. The rescue package will help to alleviate the situation as it stands but the crisis is anything if completely resolved.

The referendum also increases the chances that the country will move into default if the proposal is rejected by the Greek voters. The Prime Minister is under heavy pressure both from within his party and voters. The array of austerity measures including increased taxes and pension and wage cuts have caused a massive amount of social unrest. Polls also show that the majority of Greeks believe the new rescue package will be negative overall for the country.

Also negatively affecting the market was an intervention by the Japanese Government into the yen market in order to curb its currencies appreciation. This caused the U.S Dollar to shoot to a three month high.

The Organisation for Economic Cooperation and Development called for the G20 Governments to “act decisively” in order to restore confidence in the financial system. It stated that it wanted to see more information about how the governments and their central banks intended to deal with the debt crisis. This was on the back of lowered growth forecasts for both the Euro and U.S. Areas.