Fannie, Freddie Plunge; Stocks Rally

123jump.com Staff
08 Sep, 2008
New York City

The U.S. nationalized two largest mortgage lenders Fannie Mae and Freddie Mac after their plans to raise capital from private investors failed to attract any interest. The bailout of the lenders may force the U.S. Treasury to inject more than $220 billion in the mortgage market. The action from the U.S. Treasury is not going to prevent home prices from sliding. However, stocks around the world rallied on the hope that the action will help home market stabilize sooner.

4:00PM New York, 10:00PM Frankfurt, 6:00AM Sydney[R]– The weekend nationalization of Fannie Mac and Freddie Mae improved the mood of equity investors in Asia, Europe and in the U.S. Stocks in New York surged.[/R]

Global Markets Update

The U.S. government seized control of the two largest mortgage lenders and effectively nationalized Fannie Mae and Freddie Mac with shareholders fate unknown. The weekend nationalization of the two lenders is not likely to solve current financial mess and home prices are expected to fall during the rest of the year and in 2009. The U.S. Treasury will be forced to inject more than $200 billion to support the debt markets and values of the securities held by foreign investors and central banks.

Stocks in UK closed higher as the U.S. bailout of Fannie and Freddie bolstered positive sentiment. The ongoing decline in housing market is likely to go on, till the inventories of unsold homes decline. The move, widely expected over the weekend lifted markets in Asia and in Europe, led by a surge in trading volume in Credit Suisse, UBS, HSBS and Royal Bank of Scotland. London Stock Exchange trading platform could accept orders for most of the trading session today.

Stocks in Japan rallied as markets in Asia closed sharply higher. On Sunday the U.S. Treasury seized the troubled mortgage lenders, Fannie Mae and Freddie Mac and guaranteed to provide liquidity of $200 billion. Common shareholders stake will be wiped out and the fate of the preferred stock holders is not clear. The move highlights the extent of the problem in the U.S. financial system that has wreaked havoc around the world as global financial markets have lost $16 trillion of value.

Hong Stocks surged 4% but stocks in Shanghai declined 2%. Over the weekend the U.S. government nationalized two troubled mortgage agencies and agreed to inject $200 billion in capital. The seizure widely expected will wipe out stocks holders and left the fate of preferred stock holders undecided. Financial stocks rallied in Hong Kong. Stocks in Shanghai fell as investors worried that the economy in China may slow down further after the Beijing Olympic Games.

The Nuclear Supplies Group has agreed to back a deal between the U.S. and India according to several media reports. The deal will help India to alleviate its chronic power supply shortage and diversify its fuel sources. The deal between the two democratic nations will also increase trade in nuclear materials and nuclear reactor building contracts. Stocks in India surged on the approval news. Financials and realty stocks rallied after the U.S. nationalized the two largest mortgage lenders.

North American Markets

Dow Jones Industrial Average increased 289.78 or 2.58% to a close of 11,510.74, S&P 500 Index closed up 13.88 or 0.62% to 1,267.79, and Nasdaq Composite Index increased 13.88 or 0.62% to close at 2,269.76. In Toronto TSX Composite closed down 181.78 or 1.42% to 12,634.64.

Of the 30 stocks in Dow Jones Industrial Average 29 stocks gained, 1 declined and none was unchanged.



Alcoa Inc was the only the decliner with a loss of 2.7%.

Bank of America led gainers in Dow Jones Industrial Average with a rise of 7.7% followed by gains in Citigroup Inc of 6.5%, in Home Depot Inc of 5.5%, in Walt Disney Company of 4.97%, in JP Morgan Chase of 4.90% and in General Electric of 4.34%.

Of the stocks in S&P 500 index, 394 increased, 104 declined and 2 were unchanged. Of the index stocks, 174 rose more than 3% and 37 fell more than 3%.

KB Home led the gainers in the S&P 500 index with a rise of 14.22% followed by gains in Wachovia Corp of 13.37%, in DR Horton Inc of 12.16%, in SunTrust Banks 12.13%, in Pulte Homes Inc of 11.25% and in Zions Bancorp of 11.19%.

Fannie Mae led decliners in the S&P 500 index with a loss of 89.63% followed by losses in Freddie Mac of 82.74%, in Lehman Brothers of 12.65%, in Massey Energy of 10.55%, in Consol Energy of 10.25%, in CF Industries of 8.9% and in Sovereign Bancorp of 6.6%.

South American Markets Indexes

Mexico led gainers in the region with a rise of 1.27% followed by gains in Colombia of 1.22% and in Chile of 0.3%.

Brazil led decliners in the region with a fall of 2.35% followed by decreases in Peru of 1.40% in Argentina of 0.63% and in Venezuela of 0.02%.

Europe Markets Review

In London FTSE 100 Index closed higher 205.60 or 3.92% to 5,446.30, in Paris CAC 40 Index increased 143.52 or 3.42% to close at 4,340.18 and in Frankfurt DAX index higher 136.30 or 2.22% to close at 6,263.74. In Zurich trading SMI increased 200.83 or 2.88% to close at 7,177.42.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 412.23 or 3.38% to 12,624.46, Hang Seng index in Hong Kong increased 860.99 or 4.32% closed to 20,794.27.ASX 200 index in Australia increased 190.40 or 3.90% to close 5,067.50. The KL Composite index in Malaysia increased 5.39 or 0.50% closed to 1,075.93.

The Kospi Index in South Korea increased 72.27 or 5.15% to close at 1,476.65, SET index in Thailand closed higher 19.86 or 3.08% to 665.66 and JSE Index in Indonesia increased 15.43 or 0.76% to 2,038.00. The Sensex index in India increased 461.14 or 3.18% closed to 14,944.97.

Commodities, Metals, and Currencies

Crude oil increased $0.27 to close at $106.50 a barrel for a front month contract, natural gas increased 16 cent to $7.61 per mBtu and gasoline futures increased 6.39 cents to close at 275.00 cents per gallon.

Gold increased $3.40 in New York trading to close at $806.20 per ounce, silver closed down $0.18 cents to $12.14 per ounce and copper for the front month delivery decreased 0.55 cent to $3.09 per pound.

Wheat futures closed down 7.750 cents in Chicago trading and closed at $7.43 a bushel. Sugar decreased 0.17 cent to 12.37 cents a pound. Soybean future closed up 15 cents to $11.92 a bushel.

Dollar edged higher against euro to $1.4126 and edged higher against yen to 108.335.

Yields on U.S. bonds decreased to 3.67% with 10 years of maturities and decreased to 4.27% with 30-year of maturities.