Sharemarkets finished the second day of the second quarter generally upbeat, although Wall Street was a touch easier as investors couldn’t make up their minds about the outlook for the economy.
Fed chairman, Ben Bernanke told the US Congress that it "appears likely" the economy "will not grow much, if at all, over the first half of 2008 and could even contract slightly".
Commentators screamed ‘recession’ but the market seems to have taken that in its stride and is trying to find the rebound later in the year now.
That will be a fruitless task: when the latest housing figures for the US start appearing in the next fortnight, along with first quarters earning figures from retailers, banks, media groups and others, this desire to price in the rebound now, will be tested.
Bernanke’s comment that he doubted if the Fed would support another Bear Stearns style rescue of more financial firms slipped past the market: that rescue will get a fuller airing tonight our time when Bernanke and other Fed officials, plus the senior most executives of Bear Stearns and its rescuer, JP Morgan, appear before Congress to answer questions.
Bernanke did set the scene by telling Congressmen today that Bear Stearns had told the Fed on the Thursday night before the first rescue was revealed, that it was preparing to file for bankruptcy the next day: a move that would have shattered confidence in financial markets around the world.
Complicating matters for some investors were a downgrade to world growth from the International Monetary Fund, which now says there is a 25% chance of a global recession next year, while the World Bank and the Asian Development Bank have both cut their growth forecasts for East Asia (excluding Japan, which some think could slide into recession) and China.
The downgrades are not substantial but growth could be the slowest in China for five years.
The Standard & Poor’s 500 eased 0.2%, the Dow lost 0.4% and Nasdaq slipped 0.1%. That’s a big slowdown from the 3% plus rise on April 1.
The S&P 500 swung between gains and losses at least 16 times as retreats in technology and industrial shares outweighed advances in energy and raw-materials companies.
The markets were awaiting Bernanke’s comments and he surprised by saying the economy may shrink in the first half of the year because homebuilding, employment and consumer spending will deteriorate.
"It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly,” Bernanke told Congress’s Joint Economic Committee.
The IMF cut its forecast for US growth this year to 0.5% from a January prediction of 1.5%. The IMF said the 25% chance of a world recession could result from the worst US financial crisis since the Great Depression.
In Europe, shares rose for a second day as investors punted on the worst being over.
They will have Bernanke’s comments and those from the IMF to mull over. London rose despite a big online bank stopping accepting new mortgage applications and Lehman bros also withdrawing from the new mortgage market. The giant Halifax bank is also expected to take similar action, while British construction slumped.
The Dow Jones Stoxx 600 Index added 1.1%, extending its two-day gain to 4.5%.
National indexes gained today in all 18 western European markets. London’s FTSE 100 added 1.1%, France’s CAC 40 0.9% as did Germany’s DAX.
In Asia a similar story as shares had the best day for seven weeks.
The MSCI Asia Pacific Index rose 3.6%, the biggest gain since February 14, according to Bloomberg.
Japan’s Nikkei jumped 4.2%, Hong Kong’s Hang Seng Index surged 3.2% and Australia was up more than 2%.
The advance came after all US benchmarks rose more than 3% Tuesday, when US investment bank Lehman Brothers and Switzerland’s UBS announced well-received new share issues to prop up their balance sheets.
But the real story was that it was the first day of a new quarter: the terrible first quarter was behind everyone, so the books had been ruled off and everyone could start afresh.
Here the ASX200 is priced to rise by around 21 points, or 0.4% at the opening, despite the easier tone on Wall Street.
Yesterday it closed up 141.7 points or 2.64% to 5502.9, while the broader All Ordinaries rose 130.4 points or 2.41% 5544.9.
The banking sector was the driver, as in the US (where it was the best performer on the S&P 500).
The ANZ added $1.13, or 5.04%, to $23.54, despite the continuing bad news from the collapse of the Opes Prime broking and margin lending business which ANZ helped finance (to the tune of $650 million).
The National Australia Bank was up $1.37 to $30.50, the Commonwealth Bank $2.20 to $44.29 and Westpac picking $1.52, or 6.5%, to $24.92. Macquarie Bank was up more than 9%.
The energy sector closed lower as oil prices eased. Santos lost seven cents to $14.67 and Oil Search 10 cents to $4.70. Woodside was steady at $54.81.
BHP Billiton was up 10 cents to $36.75 and rival Rio Tinto jumped $1.19 to $125.36. That’s above the value of the BHP offer of 3.4 shares for every RIO share of $124.95, based on the closing price yesterday for BHP.
Retailers were stronger, with Woolworths adding $1.04 to $29.84, Wesfarmers 46 cents to $39.65, David Jones 7 cents to $3.72 and Harvey Norman 17 cents to $3.97.
Futuris Corporation and Singapore Telecommunications are facing write downs after the federal government cancelled their $958 million joint contract to build a bush broadband network.
Futuris Corporation, which owns Elders, dropped 2.5 cents to $1.815, while Singapore Telecommunications, Optus’s parent, lost one cent to $3.14.
