Global market update, Wednesday 10 December 2008
Global markets rallied as investors became hopeful that government stimulus measures could limit the damage from the credit crisis.WORLD – Global markets rallied on Monday, as investors became hopeful that government stimulus measures could limit the damage from the credit crisis.
US President-elect Barack Obama’s weekend announcement of large-scale infrastructure spending and the rescue plan for US automobile manufacturers, which seemed to be nearing a conclusion, buoyed stock prices. Both European and US indices climbed.
Shares in commodity producers moved higher, tracking oil and metal prices which rose due to expectations that stimulus packages would soften the global economic downturn and improve demand for basic resources.
Industrials and materials companies also gained, while automobile firms advanced after US lawmakers agreed in principle with the Bush administration on providing funds to prevent the collapse of General Motors and Chrysler. US transport bellwether FedEx cut its full year 2009 earnings outlook after the market closed on Monday.
Asian indices generated mixed returns Tuesday morning. US stimulus plan boosted confidence, with raw materials producers and exporting firms among the key beneficiaries. However, some stocks came off their early highs as investors locked in profits following a surge in the previous session.
Fixed Income Markets
European government bonds declined due to speculation that Obama’s public-spending package might stimulate economic growth. This pushed stocks higher, sapping demand for safe assets. Bond prices remained under pressure after ECB council member Ewald Nowotny stated that policy makers are in wait-and-see mode on interest rates.
US Treasuries also fell, pushing yields up from record lows, as the government announced it would auction a more-than-forecast USD 44 billion in three-and 10-year notes later this week. Three- month bills drew a rate of 0.005%, the lowest ever, suggesting investors are still seeking a haven in the relative safety of government debt. Elsewhere, Japanese debt markets opened lower this morning taking cues from their US counterparts.
Congressional Democrats sent President George W Bush a USD 15 billion draft proposal for short-term rescue of US automobile firms and said that it is likely be voted on this week. The plan would require the president to appoint a person or board to oversee long-term restructuring of the industry as a condition for companies to receive federal aid. Final details are yet to be worked out and White House officials said they do not agree with some aspects of the legislation.
Recently, Barack Obama said it is not an option to let US automobile manufacturers “collapse” and throw more workers out of jobs, any government loan or aid they get must be conditioned on the companies revamping their business and their products. He also stated that more aggressive steps are needed to cope with the housing crisis.
More headwinds are due this week from a spate of key economic reports. On Thursday, the US Labour Department will release first-time claims for unemployment benefits. On Friday, the Commerce Department is due to announce November retail sales.
Other economic indicators include the Reuters/University of Michigan Consumer Sentiment Index and the Producer Price Index reported by the Labour Department. Investors also await reports on European economic sentiment, UK trade balance, retail sales and manufacturing numbers.
As economic activity continues to deteriorate, policy makers are mulling more aggressive measures to revive spending. Both the European Central Bank (ECB) and the Bank of England slashed interest rates last week, leading to speculation that the Fed could follow suit. Given that its benchmark rate is already at 1.0 percent, the Federal Open Market Committee, which is scheduled to meet on 15-16 December, faces the difficult decision of whether to signal a move to zero interest rates.
For further information, or to discuss how current global economic conditions are affecting your investments, please feel free to contact Craig Welsh at Spectrum IFA Group or visit www.expatfinance.nl
This commentary was compiled with the assistance of Fidelity International, one of the world’s leading investment management groups.