Thursday, 29 January 2009

Stocks jump as Fed holds

Stocks are having a good run at the moment. Bloomberg reports Wednesday's market action.

U.S. stocks rose, extending a global rally, as President Barack Obama prepared to set up a so-called bad bank to absorb toxic investments and Yahoo! Inc. and Germany’s SAP AG reported better-than-estimated earnings...

The S&P 500 added 3.4 percent to 874.09, with financial companies posting 19 of the top 20 gains. The Dow Jones Industrial Average climbed 200.72 points, or 2.5 percent, to 8,375.45. Europe’s benchmark, the Dow Jones Stoxx 600 Index, rose 3.2 percent and the MSCI Asia Pacific Index gained 0.5 percent.

This time, the Fed contributed little to the rally.

Benchmark indexes climbed to their highs after the Federal Reserve left its benchmark interest rate as low as zero and said it may keep it at “exceptionally low levels” for some time...

Treasuries fell, led by the biggest decline in 30-year bonds in three weeks, after the central bank failed to expand on its plan to buy government debt as a means to reducing borrowing costs. The dollar gained against the yen and euro as the Fed resolved to do whatever is needed to revive the economy.

In contrast to the Fed, the Reserve Bank of New Zealand has a lot more leeway to cut rates. Or at least it had. From the National Business Review today:

The Reserve Bank of New Zealand has cut the Official Cash Rate (OCR) from 5 percent to 3.5 percent.

Reserve Bank Governor Alan Bollard this morning announced the reduction, to its lowest ever level, since it was introduced at 4.5 percent in 1999.

There may be more rate cuts to come from central banks around the world, although, as Reuters reports, the latest economic indicators are not all deteriorating.

The IMF released revised forecasts on Wednesday, slashing its projection for 2009 global growth to just 0.5 percent -- the weakest since World War II -- from a November estimate of 2.2 percent. It warned that deflation risks were rising and that toxic assets -- high-risk debt accumulated in the global credit boom that went bust 17 months ago -- needed to be removed from the banking system.

Earlier IMF chief Dominique Strauss-Kahn said the fund would struggle if it had to meet all potential claims on its resources and that the stability of the euro zone could be in danger if its governments did not coordinate more closely...

The United Nations agency, the International Labour Organisation, said that if the global recession deepened in 2009 another 51 million jobs worldwide could be lost this year in a worst-case scenario.

The struggle to raise business funding has helped drive confidence among leaders of the world's top companies to a new low, according to a poll of more than 1,100 CEOs that set a grim backdrop for the annual meeting of the world's business and political elite in the Swiss ski resort of Davos.

Yet in France, a survey showed consumer confidence rose in January to its strongest since April last year, although it remained heavily negative and a separate report showed industrial companies expected demand for goods to continue to fall in the first quarter.

In Germany, market research group GfK's forward-looking sentiment gauge, based on a survey of 2,000 Germans, showed morale should hold steady in February. That beat expectations ECONDE and suggested that a collapse in global commodity prices since the world economy tipped into a steep downturn may be easing at least one of the pressures on consumers...

The Conference Board's Leading Economic Index for the euro zone fell 0.9 percent in December to 93.3 points after declines in November and October, the research group said.

The index "indicates that there is no improvement in sight", said Jean-Claude Manini, the Conference Board's senior economist for Europe after the index's first release for the euro zone.

And in Italy, business sentiment fell in January for the eighth month running to its lowest on record.


danjryan said...

I was reading too quickly, and I thought this was the first line of the statement..

"U.S. stocks rose, extending a global rally, as President Barack Obama prepared to set up a so-called bad bank to absorb toxic investments and Yahoo! Inc."

Yeah, I could see how that might happen..

lim said...


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