Global Markets Shaken

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LONDON–Financial markets around the world had a rocky start Monday after European governments took steps to limit the damage from the growing global financial crisis. U.S. stocks appeared headed for a steep drop at the opening, and the credit markets remained under strain.

Investors are realizing the Bush administration’s $700 billion rescue plan won’t work quickly enough to unfreeze the credit markets, and that many banks are still having difficulties gaining access to cash.

Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France’s BNP Paribas agreed to acquire a 75 percent stake in Fortis’s Belgium bank after a government rescue failed.

The governments of Germany, Ireland and Greece also said they would guarantee bank deposits.

The Federal Reserve also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks’ reserves and will expand its loan program to squeezed banks.

“These programs are going to be effective I believe,” said Rob Lutts, chief investment officer at Cabot Money Management. “Shorter term, we’re in a very challenging environment that’s going to take a while.”

In the meantime, global markets sold off. In Asia, the Nikkei 225 closed 4.25 per cent lower. Europe’s stock markets also declined, with the FTSE-100 down 2.72 per cent, Germany’s DAX down 5.04 per cent, and France’s CAC-40 down 5.501 per cent.

And, there was also evidence the financial crisis moved into Russia. Both of that nation’s stock exchanges were suspended Monday after plunging more than 15 per cent on fears about lower oil prices and fears about the global economy.

Major U.S. indexes were ready to open lower as well. Dow Jones industrial average futures fell 173, or 1.70 per cent, to 10,191. Standard & Poor’s 500 index futures fell 25.80, or 2.33 per cent, to 1,082.50, while Nasdaq 100 futures fell 31.25, or 2.12 per cent, to 1,446.25.

The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.40 per cent from 0.50 per cent late Friday. Demand for bills remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.

Investors also moved into longer-term Treasury bonds. The yield on the 10-year note fell to 3.56 per cent from 3.60 per cent late Friday.

Banks’ hesitation to lend to one another and to many businesses and individuals is the result of the bad mortgage debt that the financial rescue is supposed to sweep up. But it’s still unclear how quickly financial institutions will be able to hand that debt to the U.S. government and convince the markets they are healthy again.

There has been some hope that perhaps the Fed, in concert with other central banks, might cut interest rates to help stimulate the economy. With oil prices well off their midsummer highs and indicators pointing to a slower economy, the Fed’s worries about inflation are less than they had been, making it easier to justify a rate cut.

Investors might get some indication about a potential rate cut with several policymakers slated to speak this week. Dallas Fed President Richard Fisher and Chicago Fed President Charles Evans will speak on the U.S. economy on Monday. Federal Reserve Chairman Ben Bernanke is due to speak on Tuesday.

Oil prices fell to an eight-month low below $90 a barrel on speculation that the spreading financial crisis will exacerbate a global economic slowdown and further cut demand for crude oil. Light, sweet crude tumbled $3.82 to $90.06 a barrel in electronic trading on the New York Mercantile Exchange.

The dollar rose to a 13-month high against the euro, and was also higher against other major currencies.

In corporate news, ailing Hartford Financial Services Group Inc. received a $2.5 billion investment from European insurer Allianz. Hartford’s market value was halved last week on concerns it needed more capital to survive.

EBay Inc. said it will cut about 1,000 jobs, reducing its work force by 10 per cent, to streamline the company. The online auction site expects restructuring charges of about $70 million to $80 million, mostly during the fourth quarter.

Wells Fargo & Co. said late Sunday its takeover agreement with Wachovia Corp. will go forward after a state appeals court blocked a lower court ruling that favored rival bidder Citigroup Inc. Wells Fargo said it will “continue working toward the completion of its firm, binding merger agreement” with Wachovia.

Eli Lilly & Co. said its board approved an acquisition of ImClone Systems Inc. for more than $6 billion. The deal, which also has been approved by ImClone’s board, will create one of the leading oncology franchises in the biopharmaceutical industry… www.thestar.com

Posted by admin on Oct 6 2008. Filed under International. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry