Weak U.S. Stocks; Japan, Australia Rate Action

123jump.com Staff
07 Apr, 2009
New York City

Earnings jitters and weakness in banks dragged market indexes lower. Soros predicts recent that recent gains as bear market rally. Central banks in Japan and Australia took steps to arrest falling economies. Japan left its key rate unchanged and Australia lowered its lending rate to 3% from 3.25%.

[R]9:40AM New York – Earnings jitters and weakness in bank stocks dragged market indexes lower. Central banks in Japan and Australia took more steps to arrest falling economies.[/R]

In New York trading, stocks opened lower and banks retreated in the morning trading. George Soros, the successful hedge fund manager that averted the recent financial crisis said that the recent gains in markets are not sustainable and it is “still a bear market rally.”

The billionaire hedge fund manager in an interview with Bloomberg said that economy is still weakening and the recent market-to-market accounting rules for banks will only prolong pain in the financial system. The U.S. economy will struggle for years before it regains its full vigor.

Ahead of earnings, Alcoa fell 2% to $7.73 and ratings revision from analysts prompted a weakness in Archer Daniels Midland, Exxon Mobil Corp and ConocoPhillips.

Central banks in Japan and Australia took more steps to support financial system and provide additional liquidity.

By a unanimous vote the Bank of Japan left its key lending rate unchanged at 0.1% and accepted broader collateral from banks. The expanded collateral will include bonds of the central government and municipal bonds. The move is directed at smaller and regional banks that do business with small and medium sized businesses.

The Bank of Japan lowered last its lending rate in December and since then has focused on easing liquidity for large corporations and purchase central government bonds. However, the easing of credit conditions has not filtered down to smaller companies.

Today’s move by the BoJ goes beyond symbolic move to help smaller companies. The BoJ holds 111 trillion or $1.1 trillion in collateral at the end of March and the today’s pronouncement will expand that to $5 trillion according to the BoJ.

The interbank rate in Tokyo known as Tibor and the spread between the commercial paper and government bond of similar maturity has shrunk considerably but accessing the credit is still tight for most individuals and companies.

Reserve Bank of Australia cut its key lending rate by 0.25% to 3% and the bank estimated that the country is in recession. The governor Glenn Stevens sounded optimistic note that recent stimulus will help contain the degree of recession in the rest of the year.

Australia is battling its first recession since 1991 and interest rates are now at 49 year low.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 25.08 or 0.28% to 8,832.85, Hang Seng index in Hong Kong decreased 69.07 or 0.46% closed to 14,928.97, CSI 300 index in China higher 6.45 or 0.25% closed to 2,576.95. ASX 200 index in Australia decreased 50.30 or 1.34% closed to 3,706.30. The KL Composite index in Malaysia lower 3.93 or 0.43% closed to 919.84.

The Kospi Index in South Korea increased 2.25 or 0.17% to close at 1,300.10. SET index in Thailand closed lower 3.48 or 0.78% to 442.56 and JSE Index in Indonesia decreased 25.78 or 1.70% closed to 1,490.86. The Markets of India were closed today.

Europe Markets Review

In London FTSE 100 Index traded lower 70.67 or 1.77% to 3,922.87, in Paris CAC 40 Index decreased 37.88 or 1.29% to 2,891.87 and in Frankfurt DAX index traded lower 49.51 or 1.14% to 4,300.30. In Zurich trading SMI decreased 17.71 or 0.35% to 4,984.37.