Bailout news once again helped US stocks close strongly yesterday. MarketWatch reports:
U.S. stocks on Wednesday snapped a six-session losing streak, with the Dow Jones Industrial Average bouncing back from a 325-point deficit to end nearly 300 points ahead, as investors rushed into financial issues and bet on another rate cut by the Federal Reserve...
Also bolstering financials was the hope that struggling bond insurers might be saved through acquisitions or cash infusions orchestrated by regulators.
European stocks, which closed earlier, did not get the latter benefit and finished sharply lower. Bloomberg reports:
European stocks declined, resuming a rout that sent the Dow Jones Stoxx 600 Index into a bear market this week, on concern lower borrowing costs won't be enough to stave off a slowdown in earnings...
The Stoxx 600 lost 3 percent to 306.03. The gauge has extended declines from a 6 1/2-year high on June 1 to more than 20 percent, a magnitude that by common definition marks the beginning of a bear market, on concern the U.S. will enter a recession.
The ECB's apparent hawkishness didn't help. From Bloomberg:
European Central Bank President Jean- Claude Trichet said he's committed to fighting inflation, attempting to quash speculation he'll follow the U.S. Federal Reserve in cutting interest rates after stocks plunged.
"Particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility," Trichet told the European Parliament in Brussels today.
In the real economy, there was evidence of further slowing in services but not in manufacturing. Bloomberg reports:
Growth in Europe's service industries, which account for about a third of economic output, cooled this month to the weakest in more than four years as the U.S. economy slowed, credit tightened and the euro neared a record.
Royal Bank of Scotland Group Plc's preliminary estimate of its services index dropped to 52, the lowest since August 2003, from 53.1 in December...
A gauge of manufacturing held at 52.6 in January, above the 52.1 median forecast of economists. A composite measure fell to 52.7 from 53.3, the lowest since June 2005.
Aggressive rate cuts also appear unlikely in the UK despite slowing growth. Reuters reports:
Interest rates are likely to come down next month to safeguard the economy but aggressive cuts of the kind announced by the U.S. Federal Reserve are not on the cards, the Bank of England signalled on Wednesday.
Minutes of the Bank's Jan 9-10 rate-setting meeting showed policymakers were having to balance risks to growth against rising price pressures, a dilemma also highlighted by Governor Mervyn King on Tuesday.
Speaking to a business audience in Bristol, King said Britain's economy faced its most challenging year in a decade but suggested rapid-fire interest rate cuts were not the answer to financial market woes...
Preliminary data showed Britain's economy grew 0.6 percent in the three-month period, easing from 0.7 percent in the third quarter but still recording the strongest full-year performance since 2004 -- growth of 3.1 percent.