It couldn’t last.
The US market plunged, diving 5% or more, driven by heavy selling in the last hour of trading. The markets ended at new five year lows as the gloom continues to envelope American investors.
It was the fifth consecutive day of falls and the US market is off around 15% and more. Financial stocks are at their lowest level for 11 years. Real estate stocks also fell in the US.
Our market is looking at a 6% plunge this morning with futures trading on the ASX200 showing a 266 point fall at the opening.
That will completely reverse the positive note left by the 1% rate cut from the Reserve Bank yesterday.
It was another day of volatile trading across the globe and it was less stressed than Monday’s dramatic day of plunges until America’s 500 point plus plunge on the Dow and 60 point drop on the S&P 500.
Gold rose $US27 an ounce to just over $US887, oil rose and traded around $US89 to $US90 a barrel in New York; copper rose, then fell. Only a couple of agricultural commodities rose: soybeans and coca.
The Reserve Bank’s 1% rate cut may have shocked our market and investors and halted the slump, but that was all.
Today will see a resumption of the doom and gloom selling. Futures markets showed the Japanese markets are looking at another big fall today as well.
Not even a big hint of a rate cut from Fed chairman Ben Bernanke could help arrest the slide in the US, nor a plan to bailout the commercial paper market, which has contracted in the past month as banks shut their lending windows.
The Fed will lend directly to non-financial companies who have been locked out of the $US1.6 trillion commercial paper market, the most important short term money market for US companies.
Europe fell slightly, London was higher on news UK banks will probably get capital injections from the UK Government, but the US weakened.
Europe’s Stoxx 600 Index fell 0.3%, a big improvement from the 7.6% fall on Monday.
National indexes fell in 15 of the 18 western European markets. Germany’s DAX fell 1.1%. London’s FTSE 100 rose 0.4%, while France’s CAC 40 gained 0.6%.
London’s rise came after its biggest fall ever on Monday and came on news of the Government aid to the banks.
The Royal Bank of Scotland dropped 39 percent to 90 pence, while Barclays declined 9.2% to 285 pence.
Media reports said the UK government may invest at least 45 billion pounds ($US79 billion) in banks including RBS and Barclays to bolster capital depleted by mortgage-related losses.
In Spain the Government revealed plans for a $US68 billion fund to buy assets from the country’s banks. The economy has been hit heavily by a housing crash.
In Russia the government will lend billions of dollars to the country’s banks: $US36 billion in total. That will take the aid since last month to around $US190 billion. Russian markets again fell.
Russia will also lend around $US5.4 billion to Iceland which took over another bank overnight as the government battles to keep the country out of bankruptcy.
Japan, South Korea and several other markets (and Australia) bounced when the news spread of the 1% rate cut.
The MSCI Asia Pacific Index fell 1.2%, compared to earlier losses at 3.2%; Tokyo’s Nikkei Index lost 3% to its lowest level since December 2003. Thailand’s SET Index lost 4.2%t as protesters blocked government access to parliament in Bangkok. Hong Kong was closed for a holiday.
Some of that rebound in Asia was due to unrealistic expectations that the cut was the first on a series of co-ordinated reductions by global central banks.
None seem planned: apart from the scheduled Australian move yesterday, the Bank of England and the Bank of Japan meet later in the week and the Us fed has used a change in technical policy to get a small rate trim through in its move to pay interest rates on overnight cash deposits for the first time.
Our market was off 3% soon after the opening, but started pulling that back in late morning trading ahead of the rate announcement at 2.30 pm. When it came with the surprise reduction, our market rose strongly and ended up well over 1% for the first gain in four days of miserable, gloomy selling.
Whether the upbeat momentum can be maintained is another thing as the gloom and doom coming from Europe and the US doesn’t look like going away soon.
The Nikkei 225 average was trading 1.8% in afternoon trading in Tokyo after being down 5.3% in the first half an hour of trading when it fell below 10,000 for the first time since 2003.
Financial stocks led Australia’s rapid turnaround after the Reserve Bank of Australia lowered the overnight cash rate target to 6 per cent from 7 per cent in Sydney.
The S&P/ASX 200 index had fallen as much as 3.3% but rallied as much as 2.5% shortly after the rate cut was announced. By the close it was up 1.7% as banks, miners and property trusts led the market higher after the biggest rate cut since 1992.
The benchmark ASX 200 ended the day up 78.3 points, or 1.7%, at 4618.7, its first gain in four days.
BHP Billiton jumped $1.91, or 6.4%, to $31.70, while Rio Tinto added $3.29, or 3.9%, to $87.77. Fortsecue Metals trimmed its losses, but still ended 18 cents, or 4.1%, lower at $4.23.
All the major banks rose, with the Commonwealth Bank adding $1.15, or 2.6%, to $45.15 and NAB adding 45 cents, or 1.8%, to $26.00. Westpac surged 77 cents, or 3.4%, to $23.77 and ANZ lagged, gaining only 10 cents, or 0.6%, to $18.15.
St George Bank gained $1.06%, or 3.6%, to $30.36, while Suncorp-Metway, which faces being split up, bucked the trend and fell 8 cents, or 0.7%, to $11.00.
Investment bank Macquarie Gro
