Markets rally as ECB cuts rates and Greece cancels referendum

Markets rallied again on Thursday. Bloomberg reports:

The Standard & Poor’s 500 Index added 1.9 percent to close at 1,261.15 at 4 p.m. in New York, resuming gains after turning lower following data on service industries that trailed estimates and the ECB president’s prediction that Europe may enter a “mild recession.” The Stoxx Europe 600 Index surged 2.1 percent, while the euro was up 0.5 percent at $1.3817. Oil rose 1.7 percent to top $94 a barrel as the S&P GSCI Index of materials increased 1.2 percent. The drop in 10-year Treasury notes sent yields up eight basis points to 2.07 percent.

There were good reasons for the rally.

The ECB cut its benchmark interest rate by 25 basis points to 1.25 percent after its monetary policy meeting on Thursday. New ECB president Mario Draghi said that "sluggish economic growth has the potential to reduce medium-term inflationary pressure in the euro area".

Perhaps more importantly, Greek prime minister George Papandreou has cancelled a planned referendum on the bailout package, which had been the trigger for the recent market turmoil.

Economic data on Thursday were mixed.

Growth in the UK services sector slowed in October. The Markit/CIPS services PMI fell to 51.3 in October from 52.9 in September.

China's service sector also lost momentum in October. The China Federation of Logistics and Purchasing's services PMI fell to 57.7 in October from 59.3 in September. However, HSBC's PMI rose to 54.1 in October from 53.0 in September.

In India, the HSBC-Markit PMI showed services activity shrank for a second consecutive month, falling to 49.1 in October from 49.8 in September.

In the US, the Institute for Supply Management's non-manufacturing index edged down to 52.9 in October from 53.0 in September but factory orders rose 0.3 percent in September after having risen 0.1 percent in August.