The US stockmarkets slumped overnight, as did Europe, on a surge in oil and commodity prices, a fall in the US dollar and worries that the $US700 billion bailout fund is talking into a giant slush fund.
Our market looks like being down 107 points on the ASX 200 at the start this morning, or 2%.
Political horse-trading between assertive Democrats and defensive Republicans is the cause of much of the market volatility.
That’s to be expected as each side tries to use the fund to their advantage for the forthcoming elections. There were signs that agreement might come ahead of hearings tonight.
That would be initially positive, but it will help the financial sector, but not boost the US economy in the short or medium terms.
The fund will become a central part of the US Government for the new Administration and this is driving some of the absurd proposals for the fund to take equity in firms helped.
Led by gold, oil and copper, commodity prices surged as the US dollar slumped (See next story).
Oil’s sharp rise was as much due to a short squeeze in an expiring contract, but there was underlying strength there.
The Dow lost 3.7%, Nasdaq more than 4% and the Standard & Poor’s 500 more than 3.8%.
The widespread bans on shorting financial stocks didn’t give any help; stocks fell as investors sold.
It was a reversal of Friday’s big surge, probably to be expected, but nevertheless a concern as it shows there’s little confidence among investors at the moment.
European markets weakened: London’s FTSE 100 index shed 1.41% to close at 5,236.26 points; in Paris the CAC 40 fell 2.34% to 4,223.51 points. The Frankfurt Dax in Germany lost 1.32% to 6,107.75 points.
Russian stocks were up 1% after last week’s rollercoaster ride forced suspensions of the RTS and MICEX exchanges for two days..
Prior to Wall Street’s opening Japanese bank, Mitsubishi UFJ Financial Group Inc said it would buy up to 20% of investment bank Morgan Stanley in a deal worth up to $US8.5 billion.
And Japanese brokerage giant, Nomura Holdings meanwhile confirmed that it had won a deal to buy all Asian operations of Lehman Brothers and was negotiating to buy the European businesses as well.
At the same time, the US Federal Reserve has agreed to allow Morgan Stanley and peer Goldman Sachs to become bank holding companies, giving them easier access to credit and so help them survive the current crisis.
It means the end of the concept of the huge, independent investment bank on Wall Street.
Frankfurt, London and Paris fell after dramatic moves last week that culminated in the emergence of that expensive US initiative to bail out the distressed financial sector.
In Asia the MSCI Asia Pacific Index rose 2.4%, extending Friday’s 5.5% jump. Japan’s Nikkei rose 1.4%. China’s CSI 300 index rose (which tracks Yuan-denominated shares on the Shanghai and Shenzhen markets), rose 6.5% to its highest close since Sept. 4.
The measure had lost 59%, but is up around 11 % from last week’s low. Shanghai rose 7.8% and Shenzhen finished up 3.8%.
In Australia, the ASX200 rose 216.4 points, or 4.5%, to close at 5020.5 points, while the All Ordinaries jumped 209.4 points, or 4.3%, to 5050.1.
Investors rushed into the market after the US government announced it would put up a $US700 billion bailout fund for troubled financial assets.
An Australian Securities and Investments Commission ban on short selling, designed to reduce volatility and improve liquidity in the local equity market, also buoyed the share market and lifted shares in companies that had recently been targeted by hedge funds. But it did delay the start to trading by an hour.
Short-selling targets Macquarie Group and Babcock and Brown bounced strongly as shorts tried to cover sold positions.
Babcock and Brown leapt 54%, or 43.5 cents, to $1.23 after and Macquarie Group rose 5.2%, or $1.90, to $37.80 (But that was short of Friday’s intra-day high of over $38)..
Australia’s major banks also rose on a day when more than $51 billion was added to the value of the All Ordinaries.
ANZ Bank jumped $1.44, or 8.1%, to $19.15, while National Australia Bank climbed $1.30, or 5.7%, to $24.30.
Commonwealth Bank rose $1.90, or 4.5%, to $44.60, Westpac put on $1.16, or 4.9%, to $24.70 and St George Bank rose, or 3.1%, higher to $31.49.
BHP Billiton surged 12.1%, or $4.30, to $39.70, and Rio Tinto jumped 9.3%, or $9.50, to $111.00.
In late trade, the Aussie was at $US0.8300, having risen to a three-week high of .84.03 US cents earlier in the session, and way above 81.29 finish in Sydney on Friday.
Shares in hedge fund manager HFA Holdings Ltd (HFA) closed down 6 cents at 72 cents on concerns over its exposure to listed stocks.
The shares traded an all-time low for the stock since HFA listed in April 2006.
And then there were none: the great US investment bank is dead, the last two surviving members, Goldman Sachs and Morgan Stanley died late Sunday night in the US when an Ann cement on the Fed’s website revealed the dramatic news
The upshot is that Fed has approved the applications from the two investment banks to become bank holding companies, subject to regulation by the Fed.
During the transition period, the Fed will make loans to both entities and to the broker-dealer subsidiary of Merrill Lynch against collateral acceptable for posting either by a bank or a securities firm.
The Fed will also lend to Goldman, Morgan and Merrill’s London-based broker dealer subsidiaries directly.
The Fed said its approval is subjec
