Treasury Actions Lift U.S., European Markets

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

Stocks rallied in the U.S. and Europe after the U.S. government expanded its involvement in supporting the faltering mortgage markets and offered an insurance plan for money market fund. The government is struggling to come up with comprehensive plan to tackle the falling housing market, but so far has offered a piecemeal solution. The additional liquidity provided by the Fed of $188 billion failed to lift market confidence.

[R]11:45AM New York – U.S. benchmark indexes rallied after the historic intervention in the market by the U.S. administration. The government plan calls for expansion of Fannie and Freddie role and insurance plan for money market funds.[/R]

U.S. benchmark indexes surged on the optimism that the U.S. government plan to inject capital in the mortgage markets will revive confidence in the credit markets. S&P 500 index surged 3% and Nasdaq index added 2.2%.

Treasure Secretary Henry Paulson outlined several steps to stabilize financial markets and extended temporary guarantee to money market mutual funds for up to $50 billion. Money market funds play an important role as saving and investment vehicle. Investors consider money market funds as safe as checking account but they are not insured by a government program. With the fall of AIG and Lehman bankruptcy several money market funds faced run as worried investors pulled money from the funds.

The Treasury hopes its action will enhance market confidence and alleviate investors'' concerns about the ability for money market mutual funds to absorb a loss. Investors in money market mutual funds with a net asset value that falls below $1 would be notified that their fund triggered the insurance program.

The Treasury will provide critical additional funding to mortgage markets and through Fannie and Freddie will increase their purchases of mortgage backed securities. Second, Treasury will expand the MBS purchase program to include mortgages that are not currently on the approved list of securities purchase.

The Treasury Secretary Paulson also indicated at a press conference this morning that his office along with the Fed and U.S. Congress will try to hammer out details of mortgage bonds rescue plan. During a question answer session he said that plan may involve “hundreds of billions of dollars.’’

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 431.56 or 3.76% to 11,920.86, Hang Seng index in Hong Kong increased 1695.27 or 9.61% closed to 19,327.73. CSI 300 index in China lower 177.12 or 9.34% closed to 2,073.11. ASX 200 index in Australia increased 196.80 or 4.27% to close 4,804.10. The KL Composite index in Malaysia higher 34.04 or 3.43% closed to 1,025.70.

The Kospi Index in South Korea increased 63.36 or 4.55% to close at 1,455.78, SET index in Thailand closed higher 24.45 or 4.07% to 624.83 and JSE Index in Indonesia increased 104.06 or 5.82% to 1,891.73. The Sensex index in India increased 726.72 or 5.46% closed to 14,042.32.

Europe Markets Review

In London FTSE 100 Index traded higher 359.60 or 7.37% to 5,239.60, in Paris CAC 40 Index increased 254.33 or 6.43% to 4,212.19 and in Frankfurt DAX index traded higher 295.38 or 5.04% to 6,158.80. In Zurich trading SMI increased 356.89 or 5.39% to 6,980.14.

Earnings Review

Oracle Corporation, the business software maker said first quarter revenues rose 18% to $5.33 billion from $4.5 billion a year ago. Net income in the quarter rose 28% to $1.08 billion or 21 cents per diluted share compared to net income of $840 million or 16 cents per share, a year ago.

Oracle Corporation ((ORCL)) in the last one year traded as high as $23.62 in August 2008 and as low as $17.84 in March 2008. Based on the yesterday’s closing price the company has a market cap of $96.79 billion.