Global Financial Crisis

NEW YORK (CNNMoney.com) — Stock markets around the world on Monday jumped higher after governments took a series of aggressive steps to address the global financial crisis.

Stocks in Europe were trading up and key markets in Asia closed higher.

“It looks like we’re going to have a nice relief rally today,” said David Buik with BGC Partners in London.

Investors were reacting to several government actions:

* The British government announced a $63 billion investment in three major banks.
* The U.S. Federal Reserve, Bank of England, European Central Bank and the Swiss National Bank revealed coordinated steps to juice short-term funding markets. Bank of Japan said it will mull similar measures.
* On Sunday, 15 European nations agreed to a wide-ranging plan to shore up troubled banks.

In early trading, London’s FTSE 100 was up 4.3%. The Cac 40 in Paris had gained 6.4% and the Dax in Frankfurt, Germany, was up 5.8%.

In Asia and the Pacific, most markets on Monday posted gains - some were strong.

Hong Kong’s Hang Seng stock index rallied to close up 10.2%. South Korea’s Kospi index finished 3.8% higher . The Shanghai Composite gained 3.7%. The Taiwan Weighted finished down 2.2%. In Indonesia, the Jakarta Composite was flat.

German leaders were finalizing plans for a rescue package of up to $543 billion to help shore up their banking system.

Stocks in Australia closed the day 5% higher. Markets in Japan were closed on Monday.
Next up: Will U.S. markets keep it going?

Futures for U.S. stocks were sharply higher - indicating a good start when trading begins at 9:30 ET. U.S. bond markets will be closed Monday for the Columbus Day holiday but stock markets will be open.

At 8 a.m. ET Monday morning, Neel Kashkari, appointed last week to oversee the United States’ $700 billion bailout program and the newly created Office of Financial Stability, will make his first public speech. Kashkari, a former executive at Goldman Sachs, is expected to offer details about how the U.S. bailout will be implemented.

Kirby Daley, senior strategist with the Newedge Group in Hong Kong, said investors were reacting positively to the news but remained cautious. “Policymakers around the world are going to target the heart of the credit crisis problem. However, more time is needed to get the implementation right,” he said.

The scope of the U.S. bailout has changed dramatically since passage little more than a week ago. Initially, the centerpiece of the plan focused on the government buying distressed debt - mostly tied to risky mortgages - from troubled banks.

With the bad paper off banks’ books, the hope was that institutions would start lending again - credit markets have been under severe strain in recent weeks as banks have hoarded cash.

But credit markets have remained tight and the U.S. government is now expected to try other measures, such as making direct equity investments into banks.

On Friday, the Dow ended its worst week ever and capped a staggering eight-session selloff that has seen the blue-chip index fall 2,400 points, or 22%.
Governments get together

Investors late last week were demanding coordinated action to stem the credit crisis. Finance officials and central bankers have started to strike more boldly.

Shortly before stocks started trading Monday, the British Treasury said it will pump $63 billion into the Royal Bank of Scotland, HBOS and Lloyds TSB.

“The overall aim of these measures is to support stability in the financial system; to protect ordinary savers, depositors, businesses and borrowers; and to safeguard the interests of the taxpayer,” a statement from the British Treasury said.

A fourth bank, Barclays, said it will forgo the government program and will raise $11 billion on its own by selling new shares of preferred stock.

The British move, which had been telegraphed in advance, followed an emergency meeting in Paris on Sunday at which the leaders of 15 European nations agreed to a wide-ranging plan to shore up troubled banks by adding capital through investment and by guaranteeing inter-bank lending.

The nations also said they would protect individual depositors’ accounts and move to ease accounting regulations that determine how assets are valued, removing a requirement that they be based on market prices - so-called “mark-to-market” accounting.

Source: money.cnn.com

As the economic downturn continues to hit consumers’ wallets, market analysis firm J.D. Power is predicting even bigger drops in U.S. and global auto sales than it had previously thought.

The company forecast that automakers will sell 10.8 million vehicles to retail customers, as distinct from fleet customers, in all of 2008. That will be about 2 million fewer retail sales than the industry had in 2007, for a drop of about 15.6%.

Overall light vehicle sales, including both fleet and retail, will drop by 16% to 13.6 million units, J.D. Power said. And sales are expected to drop even further in 2009. Light vehicle sales, or sales of vehicles other than heavy-duty trucks, that year are seen hitting 13.2 million units.

About two-thirds of the decline in retail sales can be attributed to customers putting off vehicle purchases. Drivers are keeping their vehicles an average of 4 months longer in 2008 than they were in 2007, the company said in a prepared statement.

“Any truly pronounced recovery appears to be more than 18 months away,” Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates, said in a statement.

Credit concerns and the deteriorating value of potential trade-ins, have been keeping Americans out of the new car market, said Schuster.

“The additional decline in expected vehicle sales is a function of growing concerns around availability of credit and leasing, declines in vehicle equity and general economic stress,” Schuster said.

Given the rate of economic change, the forecast could be off by as much as 200,000 units, the company said.

European sales are also projected to decline, but less than those in the U.S. J.D. Power sees European sales of 21.3 million units, a decline of 3.1%. An increase in sales in Eastern Europe would partly offset a 7.5% decline in Western European sales.

Developing auto markets are also expected to be hard-hit, J.D. Power said. The Chinese auto market will still see an increase, rising by 9.7%, the company said, but that’s much less than the 24.1% increase seen in 2007.

Growth will also slow greatly in India, the company projects.

“While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse,” said Schuster. “While mature markets are being impacted more severely than emerging markets, no country or region is completely immune to the turmoil.”

Both Ford (F, Fortune 500) and General Motors (GM, Fortune 500) stocks have been under pressure, with GM stock down 20% at one point Thursday morning.

Source: http://money.cnn.com

Thai stocks posted a modest rebound yesterday, gaining 1.55% as most Asian equity markets closed higher after central banks across the world slashed interest rates and pumped tens of billions of dollars into the money markets to break the current crisis.

The Stock Exchange of Thailand index closed just off the 500-point barrier, ending trade at 499.99, up 7.65, in trade worth 20 billion baht. The index had fallen to a low of 473.94 points before rebounding in afternoon trade.

Energy stocks rose 4.31%, banks gained 2.06% and tech stocks dropped 1.55%.

But analysts cautioned that the gains, which followed four straight days of losses, were likely to be short-lived as the global economy looked more likely to fall into a recession going into 2009.

The Securities and Exchange Commission, meanwhile, directed local brokers to report their financial positions and margin lending activity on a daily basis.

Brokers must detail the status of their client cash, margin and futures accounts, including data on customer settlement defaults or accounts for which collateral has fallen under limits.

The SEC also wants brokers to disclose details about their proprietary trading portfolios, including holdings in stocks, bonds and derivative instruments.

SEC officials insist that the financial status of the local brokerage system remains sound, with capital funds comfortably in excess of minimum requirements.

But the rapid decline in the market - down 26% over the past month and over 42% since January - has raised potential risks as client asset portfolios have fallen sharply in value.

Prasit Srisuwan, the chief executive officer of BFIT Securities, said brokers were aware of the rising clearing and settlement risks in the current environment.

He said BFIT Securities had outstanding margin loans of just 250 million baht, out of credit lines of one billion and capital funds of 528 million.

BFIT Securities and other brokers impose strict rules on margin trading, with clients required to post additional collateral if their portfolio value falls with share prices. Heavy declines in values can lead to forced selling of shares to limit losses and potential credit risks.

Market regulators and participants plan to hold talks today to discuss the current global crisis.

SET president Patareeya Benjapolchai said the meetings would include representatives of the Association of Securities Companies, the Securities Analysts Association, the Association of Investment Management Companies and the Foreign Brokers Association.

She said that margin-forced sales and short-selling were not major problems for the SET. Outstanding margin loans for the system were just over 20 billion baht, a relatively small figure when compared with the overall size of the market. Forced selling activity accounted for just 0.6% of total trading volume.

Short-selling, or securities borrowing and lending, also represented a minor proportion of total trading.

Some exchanges, including the New York Stock Exchange, have over the past three weeks imposed short-selling bans on certain stocks, particularly financial institutions, to help curb share volatility as prices have fallen on panic sales by investors. Other markets, including Indonesia, France and Russia, have relied on circuit-breakers and temporary trading suspensions to help reduce volatility.

While analysts caution that short-term trends remain bearish, the recent slide in share prices means many solid stocks are trading at bargain prices.

Robert Penaloza, the chief executive officer for Aberdeen Asset Management, said he saw huge long-term opportunity for not just the Thai stock market, but global capital markets in general.

“Many stocks now are priced under their fundamental value,” he said, adding that for the near-term, market volatility was expected to remain high.

Reungvit Nandhabiwat, the secretary of the Thai Financial Planners Association, agreed.

For investors with a time horizon of less than one year, expect no real improvement in trends, he said.

“But you can start planning for medium- and long-term prospects. Over a four- to five-year period, you should see returns,” Mr Reungvit said.

Source: http://www.bangkokpost.com

Indian stocks fell sharply by nearly 1,000 points to a three-year low in the opening session of trading on Friday, registering a drop of 9%.

The benchmark Sensex fell below 10,400 points in early trade before making a partial recovery.

The crash also affected the rupee which fell to 49 against the US dollar.

Meanwhile, the Reserve Bank of India (RBI) has cut the cash reserve ratio for banks to 7.5% to help generate more cash in the banking system.

It could make more than $12bn of credit available in an effort to resolve the liquidity crunch, the BBC’s Prachi Pinglay in Mumbai (Bombay) says.

Traders say the market is responding to the global markets and the cut in the cash reserve ratio will help reduce the impact of the global crisis.

Some Indian traders fear that many foreign institutional investors, faced with increased problems at home and an unwillingness to take on extra risks, will sell their emerging market holdings and leave the market.

According to official figures, foreign funds have sold shares worth $879m (£445m) in the four days to Thursday, taking total outflow in 2008 to $4.8bn.

Some traders say the figures show that foreign investors are “queuing up to exit” the Indian market.

Source: http://www.bbc.co.uk

Iceland has nationalised its biggest bank, Kaupthing, and suspended trade on its stock exchange in an attempt to prevent further panic in the country.

Kaupthing is the third bank to be rescued by Iceland’s government.

The OMX Nordic Exchange Iceland is closed for trading for two days because of “unusual market conditions” and will reopen on Monday.

Meanwhile, Iceland’s Prime Minister Geir Haarde criticised the UK’s move to freeze Icelandic bank assets.

Mr Haarde said the UK used anti-terrorism legislation to freeze assets in Landsbanki in order to protect UK savings in one of its units, Icesave.

“We do not consider this to be a particularly friendly act. But we understand that the UK authorities need to act in the interests of their citizens,” he said.

Prime Minister Gordon Brown has condemned Iceland’s handling of the collapse of its banks and its failure to guarantee British savers’ deposits.

Mr Brown said it was “effectively illegal” and “completely unacceptable”.

Unusual conditions

Mr Haarde said Iceland had not decided whether to seek help from the International Monetary Fund to weather the crisis.

The country’s Financial Supervisory Authority said it took over Kaupthing to safeguard its domestic banking system.

All domestic deposits at the bank were fully guaranteed, it added.

On Wednesday, the UK Treasury arranged for ING Direct to take over the £2.5bn of deposits of 160,000 UK customers of Kaupthing’s online arm, Kaupthing Edge.

The Swedish central bank had already agreed to provide a loan to the bank’s Swedish arm.

Iceland’s government has now seized control of all three of the nation’s major banks. Landsbanki and Glitnir were taken over earlier this week.

The country of just 300,000 people has struggled to cope with the global financial crisis.

“The action taken… was a necessary first step in achieving the objectives of the Icelandic government and parliament to ensure the continued orderly operation of domestic banking and the safety of domestic deposits,” Iceland’s Financial Supervisory Authority said.

Source: http://www.bbc.co.uk

The People’s Bank of China cut rates for the second time in three weeks, reducing borrowing costs by over a quarter of a percentage point to 6.93pc.

Taiwan and South Korea followed suit today, reducing rates by 0.25pc points.

Australia slashed its borrowing rates earlier this week by one percentage point to 6pc. Japan is the only major Asian country to keep rates on hold at 0.5pc.

However, the Bank of Japan injected 2 trillion yen (£11.67 bn) into the money markets on today, adding emergency funds for a 17th straight business day.

In response, Japan’s Nikkei index was up 1.25pc by early afternoon in Tokyo, a day after suffering its biggest fall since the 1987 crash. In Hong Kong, share prices rose by 1.1pc, while the benchmark Shanghai Composite index gained 1.59pc. Singapore was up by nearly 1pc and Seoul added 0.2pc.

The mood remained tense, however, after disastrous losses across the region on Wednesday. The black mood continued in Australia, where the Sydney stock exchange fell 2.2pc, and Indonesia, where trading was suspended for the second day in a row.

Daisuke Uno, a market strategist at Sumitomo Mitsui Bank in Tokyo, said the interest rate cuts may not be enough to stem the panic, which is spreading from the West to Asia.

Central banks “had to take the action after watching the chain reaction of the market plunges, but a half-point cut was such a stingy move.”

There were more fears that a recession in the West would badly affect Asian exports. Steel mills in China have asked Mount Gibson Iron, a major Australian iron ore supplier, to delay some shipments, a move than sent the company’s shares down by 32pc.

Japan’s core machinery orders, a key measure of capital spending by the country’s companies, slid 14.5pc in August, the fastest drop in more than two years.

Japanese Prime Minister Taro Aso called for an additional economic stimulus package “very urgently” to shore up the world’s second-largest economy.

However, Toyota saw its share price rebound, rising 6.7pc after investors judged yesterday’s (weds) sell-off overdone. Toyota said its profits may be down by 40pc because of weak sales in the US.

The financial crisis has also presented China with the opportunity to snap up bankers with expertise in global capital markets. Domestic Chinese investment banks told state media that they would be on the hunt for staff who have been laid off in Wall Street or London.

Source: http://www.telegraph.co.uk

Markets tanked Thursday - with the Dow falling nearly 700 points during the session - as panicked investors dumped stocks across the board.

Bank lending remained tight as nervous institutions continued to hoard cash. Treasury prices fell, raising their corresponding yields. The dollar gained versus the euro and the yen. Oil, gas and gold prices fell.

The Dow Jones industrial average (INDU) lost 679 points, or 7.3%, closing at its lowest point since May 21, 2003. It was the Dow’s third biggest one-day point-loss ever.

The Standard & Poor’s 500 (SPX) index lost 7.6% and closed at its lowest point since April 28, 2003. The Nasdaq composite (COMP) lost 5.5% and closed at its lowest point since June 30, 2003.

A key measure of investor fear hit an all-time high: The CBOE Volatility (VIX) index, or the VIX, hit nearly 64.

Over the last seven sessions, the Dow has lost 2,271 points, or 20.1%. Since hitting an all-time high of 14,164.53 one year ago today, the Dow has lost 39.4%.

“We are in a free fall right now and fundamentals have been thrown out the window,” said Phil Orlando, chief equity market strategist at Federated Investors.

Stocks have tumbled despite a series of efforts on the part of the government to unfreeze the credit markets and get money flowing through the system again.

On Thursday, the Treasury said it was looking to buy stakes in some banks as part of the $700 billion bank bailout law enacted last week. The main focus of the bailout remains buying bad assets from banks.

The Fed and Treasury have done many things right, but the markets realize that these programs won’t have an impact on the market until six to nine months out, Orlando said.

“[Third quarter] earnings will still be poor, [third-quarter] GDP will be a disaster,” he said. “Investors are trying to price in the depth of the recession now.”

One year ago today, the S&P 500 hit an all-time high of 1565.15. As of Thursday’s close, it was down 41.9%.

The Nasdaq has never come close to its record of 5,048.62 hit on March 10, 2000, at the end of the tech bubble. But after hitting a six-year high of 2,859.12 last Halloween, the Nasdaq had slipped 42.5%, as of Thursday’s close.

Stocks had slumped throughout the year, but the selling accelerated in September following a series of bank failures and mergers.

“The Lehman bankruptcy was really the failure that triggered this waterfall event we’ve been going through,” said John Merrill, chief investment officer at Tanglewood Wealth Management.

“Suddenly people who thought they had access to money didn’t have money and they had to sell something,” he said. “So it started with forced selling and it’s turned into a panic.”

After the close of trade Thursday, Citigroup said it failed to reach a deal with Wachovia. Citi said that although it will seek damages, it won’t block a Wachovia (WB, Fortune 500)-Wells Fargo (WFC, Fortune 500) merger.

GE is due to report earnings Friday. In addition, President Bush is expected to make a statement in the morning, telling investors that economic officials are doing everything they can to stabilize our financial system.

Source: CNNMoney.com