Tuesday, September 23, 2008
22-Sep -World Daily Markets Briefing
| Forex LONDON - The dollar dropped more than 1 percent versus the yen on Monday as sceptical investors sought the meat of a $700 billion U.S. bailout plan, aimed at tackling the worst credit crisis since the Great Depression. The package, which is awaiting Congressional approval, would give sweeping powers to the U.S. Treasury to buy up toxic mortgage-related debt from financial firms, including U.S. subsidiaries of foreign banks. Democratic leaders in Congress have promised swift action and lawmakers are striving to get a plan in place by the end of the week, fearful a delay could send markets reeling. But while the package has gone some way towards taking the edge off market jitters, significant questions remain over its impact on the U.S. fiscal position. "The Treasury will be able to fund this (bailout package) by extra Treasury sales and that's an extra burden on the U.S. fiscal position -- that's absolutely a dollar negative for the short and medium-term," said Geoff Kendrick, senior currency strategist at UBS. Analysts also said the latest market ructions sparked by the collapse of Lehman Brothers last week and the $85 billion bailout of troubled insurance giant AIG had succeeded in snapping investor attention back from global concerns to the U.S. economy. "The epicentre of the problem was the U.S. and markets seem to be re-focusing on that now ... until you get to a stage where the package starts to help the real economy," Kendrick said. At 1120 GMT, the dollar was down 1.1 percent on the day at 106.18 yen, dropping from a near two-week high of 108.04 hit late last week. The euro rose 0.9 percent to a three week high at $1.4625, but was weaker against the yen, falling 0.3 percent to 154.96 yen. Sterling also benefited from dollar selling, hitting its highest in more than three weeks at $1.8473. U.S. stock index futures pointed to a lower Wall Street open, suggesting that U.S. share prices may give back some of the gains made in Friday's massive knee-jerk response to news of a U.S. bailout package. Negative impact on the U.S. Treasury's balance sheet from the financial storm is mounting up at quite a pace, with the $200 billion bailout of troubled mortgage agencies Fannie Mae and Freddie Mac and co-ordinated money market liquidity injections adding to the burden. But even as questions such as at what price the U.S. authorities pay for toxic debts and when the buying will start remain unanswered, analysts say no immediate action at all would have worsened the financial market turmoil. "Despite concerns that a $700 billion fund to purchase assets from banks will crash the value of dollar, there are two points to bear in mind," said Richard Jerram, economist at Macquarie Securities. " First, it is not very much money -- 5 percent of GDP -- and this is gross cost, not net. Second, it is cheaper than procrastination," he added. Adding to the list of significant developments post the Lehman meltdown, Goldman Sachs and Morgan Stanley were granted approval on Sunday to become banking holding companies regulated by the U.S. Federal Reserve, enabling them to take deposits and gain easier access to financing as they fight for survival amid the financial market turmoil. US Stocks at a Glance US STOCKS-Market drops on rescue plan detail worry NEW YORK - U.S. stocks extended losses in the first ten minutes of trading, with the S&P 500 and Nasdaq falling more than 1 percent, on uncertainty about the workings of the proposed $700 billion financial sector bailout. Banks led the way lower on the S&P 500 and the Dow. IPod-maker Apple Inc was the top drag on the Nasdaq after its price target was cut by Morgan Stanley. The Dow Jones industrial average was down 99.00 points, or 0.87 percent, at 11,289.44. The Standard & Poor's 500 Index was down 15.42 points, or 1.23 percent, at 1,239.66. The Nasdaq Composite Index was down 28.53 points, or 1.25 percent, at 2,245.37. US STOCKS-Opening bounce seen on bank news, Microsoft NEW YORK - U.S. stocks headed for bounce at the open on Monday as news that Japan's largest bank planned to buy a stake in Wall Street bank Morgan Stanley tempered worries about the proposed $700 billion financial sector bailout. Mitsubishi UFJ Financial Group said it planned to buy a stake of as much as 20 percent in Morgan Stanley, sparking a surge of more than 11 percent in Morgan Stanley's shares before the bell. Microsoft Corp shares climbed more than 5 percent to $26.45 before the bell after the software maker raised its quarterly dividend and set a $40 billion stock repurchase plan. Even so, investors remained cautious about the likely shape of the proposed $700 billion bailout to mop up hundreds of billions of dollars worth of bad mortgage debt. Investors worried Congress would seek to change the Bush administration's plan, which Treasury Secretary Henry Paulson announced on Friday. The proposal, coupled with earlier bailouts, bankruptcies and arranged mergers, would do nothing short of reshape the U.S. financial landscape. "Some skepticism about whether or not the bill is going to be passed the way Paulson wants it to be might be giving the market a bit of a hiccup," said Peter Cardillo, chief market economist at Avalon Partners in New York. "Will they add things to it? So that raises the level of skepticism. Secondly, what does it mean for inflation? This could be very inflationary." Rising oil prices could be another headwind for the market, with U.S. front-month crude up 2.6 percent at $107.30 a barrel as the dollar weakens. In another development, Goldman Sachs and Morgan Stanley, whose shares were pummeled last week, are abandoning their investment bank model of two decades to become bank holding companies. They will have an additional safety net from the Federal Reserve but may not be as profitable as in the past. Officials have said the plan, in which the government will buy soured mortgage-related debt from financial institutions, will cost taxpayers hundreds of billions of dollars. Europe share Europe shares fall, questions linger over US plan FRANKFURT - European shares fell by midday on Monday as questions lingered over a U.S. financial sector package designed to tackle the financial crisis. At 1142 GMT, the FTSEurofirst was down 0.6 percent at 1,144.13 points after an 8.2-percent rise on Friday, its biggest one-day gain on record. "One still sees nervousness in the market, moves up and down followed by the next moves up and down," said Heinz-Gerd Sonnenschein, equity strategist at Postbank in Germany. Banking stocks, a major gainer on Friday, were mixed, with HSBC down 4 percent and Anglo Irish Bank 6.3 percent lower, while Credit Agricole was up 2.4 percent and Royal Bank of Scotland rose 3.6 percent. The DJ Stoxx banking sector index was down 0.4 percent. On Friday, the European banking sector jumped following temporary bans on short-selling of financial stocks and the U.S. Treasury's proposal of the largest-ever bank rescue plan. "(Investors are waiting) to get a clearer picture about the total construction of this package, like whether non-U.S. banks can join, which assets will be allowed in, and how the prices will be created," said Sonnenschein. Washington proposed a $700-billion taxpayer-funded plan in an effort to ease the global credit crisis and reverse the U.S. housing slump. "The devil will be in the details and questions remain for instance on the price setting and profit and loss sharing mechanism," said credit analyst Stephane Zeisel at Barclays Wealth Research in a research note. Analysts said much volatility could be expected on the market this week, as market players try to assess the impact of the package. Meanwhile, Goldman Sachs and Morgan Stanley are giving up their investment bank status in return for cover under the U.S. Federal Reserve's wing to survive the crisis that forced rival Wall Street firm Lehman Brothers to file for liquidation. The FTSE 100 index was down 0.22 percent, the German DAX was 0.24 percent lower and France's CAC 40 slipped 0.11 percent. Commodity shares bucked the trend and were the top weighted gainers on the index. Energy shares were higher after crude prices gained $1.90 to $106.45 a barrel. BP, Royal Dutch Shell and BG were up 1.1-2.3 percent Miners tracked metal prices higher with copper up 2.2 percent. Eurasian Natural Resources, BHP BILLITON , Vedanta Resources and Xstrata rose between 2.3-3.85 percent. The travel and leisure sector however took a hit from higher oil prices, with airlines such as Air France-KLM, Ireland's Ryanair and Britain's Easyjet down between 2 and 7.8 percent. Analysts said that the bailout package may be positive for stocks but added the damage from a year-long credit crisis had spread further into the economy. "From a top-down standpoint this will not change too much in Europe, which is clearly facing a recession," said Heino Ruland, analyst at FrankfurtFinanz. Asia at a Glance Asian stock market summary JAPAN The benchmark Nikkei average ended up 1.4 percent at 12,090.59, buoyed by financial shares, on hopes that the bank bailout proposed by Washington over the weekend will tackle the financial crisis. Nomura Holdings shot up more than 9 percent on news that it has bid for both the Asian and European operations of Lehman Brothers, while GS Yuasa Corp plunged after the car battery maker said it had found improper accounting at a subsidiary. The broader Topix gained 1.7 percent to close at 1,168.69. SOUTH KOREA The Korea Composite Stock Price Index closed up 0.31 percent at 1,460.34, on hopes prompted by a U.S. government plan to rescue the financial system, but caution over success of the plan and higher oil prices pared early gains. AUSTRALIA The benchmark S&P/ASX 200 index finished 4.5 percent higher at 5,020.5, boosted by a ban on short selling and renewed confidence after the U.S. government unveiled steps to rescue the financial system. CHINA The benchmark Shanghai Composite Index closed up 7.77 percent at 2,236.41, extending Friday's surge in the benchmark index, after regulators took further measures to support the markets following the recent global financial turmoil. China's securities regulator announced yesterday that listed firms will no longer need to obtain prior approval for share buybacks. Analysts said an unprecedented US government plan to bail out its financial institutions also encouraged investors. The Shanghai A-share Index rose 7.78 percent to 2,348.57, and the Shenzhen A-share Index added 3.85 percent to 649.41. The Shanghai B-share Index was up 7.08 percent at 130.20, and the Shenzhen B-share Index rose 1.03 percent to 314.89. TAIWAN The weighted index closed up 2.35 percent at 6,110.60, sharply higher after the US government unveiled plans to buy up to $700 billion of distressed assets from financial institutions in a bid to shore up the credit markets. Dealers said the Taiwan market also got a boost from local curbs on short sales. Taiwan's top financial regulator announced a temporary ban on short-selling in 150 stocks to "maintain the order and stability of the stock market." HONG KONG The Hang Seng index closed up 304.47 points or 1.58 pct at 19,632.20, off a low of 19,137.67 and high of 19,869.02. INDIA The Bombay Stock Exchange's 30-share benchmark Sensitive Index closed down 47.36 points or 0.34 percent at 13,994.96 and the National Stock Exchange's broader 50-share S&P CNX Nifty closed down 22.20 points or 0.52 percent at 4,223.05. Labels: ADVFN NewsDesk, forex, Forex Analysis, FX Instructor |
posted by Matbank at 12:27 AM
