A big reality check last week for markets here and around the world, and Friday’s slight up tick won’t change a thing.
In fact it was a case of welcome to 2009 for investors as the Santa Claus rally ended with a reminder that the same issues that drove prices lower in 2007 and 2008, had not gone away with the change of years.
The health of the US markets remains the major driver, especially banks and other financial stocks.
The world is firmly ‘coupled’ to the US market’s health and gyrations.
The benchmark Standard & Poor’s 500 started 2009 up more than 20% from the 11 year low hit in November.
By Friday’s close that rise had been cut to around 13% as fears about the health of giant banks, Citigroup and Bank of America, sent tremors through markets across the world.
The S&P 500 lost 4.5% last week, its worst week since big dip in November.
The Dow rose a touch on Friday to 8,281.22 but fell 3.7% over the week. Nasdaq was off 2.7% and will be tested this week with major quarterly reports from the likes of IBM, Google and Microsoft.
The KBW Bank Index of 24 lenders sank 4.1% to below its lowest closing level since June 1995.
Bank of America dropped 13.7% to $US7.18 to take its fall for the week to a massive 44.7%.
Citigroup shed 8.6% to $US3.50, taking its weekly decline to 48.1%, after the bank confirmed its break-up plan along with a fourth-quarter loss.
European shares fell, led by financial groups such as Deutsche Bank with a reported a record loss, Anglo Irish Bank Corp. which was nationalized in Dublin, doubts about the earnings of Barclays in London and worries about whether the giant HSBC has enough capital.
HSBC fell 15%, Deutsche Bank, 18% and Barclays 45% with a 25% plunge Friday.
The Dow Jones Stoxx 600 Index fell 7.2%, bringing the decline so far in 2009 to 2.7%. National benchmark indexes slid in all of the 18 western European markets. Germany’s DAX shed 8.7%. France’s CAC 40 lost 8.6% and London’s FTSE 100 slipped 6.8%.
Standard & Poor’s lowered its sovereign credit rating on Greek debt by one step to A-, citing the country’s weakening finances, and said it may also cut the ratings of Spain and Portugal.
In London the FTSE 100 broke a seven-day losing streak on Friday but like in New York, bank investors saw Barclays lose 25% of its market value.
The plunge came in the last hour of trading as several bearish rumours circulated.
The most commonly cited rumours were that Barclays would be blocked from joining any UK government “bad bank” scheme as it has chosen not to participate in a state recapitalisation; or that it had a need to make bigger than expected asset write-downs, or that its earnings were under more pressure than thought.
The bank replied by telling the market its earnings were solid.
Not helping was the end of the UK short-selling ban on financial stocks. Royal Bank of Scotland fell 13% and Lloyds TSB, 4.9%.
HSBC hit a 10-year low after Fitch put the lender’s credit rating on negative watch (after Morgan Stanley had said earlier in the week that the giant bank could need another $US30 billion of new capital).
Banking analysts at RBS meanwhile said UK domestic banks were “technically insolvent on a fully marked-to-market basis” while their emerging market peers were too weak to withstand the current stage of the economic cycle.
Rio Tinto rose 7.5% after Tom Albanese, the CEO, ruled out a rights issue.
The FTSE 100 ended up for the day, but down 6.7% over the week.
In Asia, China ended up for the week, but the rest of the region had a tough week, despite that jump on Friday.
Shanghai rose 2.6% at 1,954.44 points, but it was still under the 2,000 point level, long considered an important level of the market’s strength.
Friday’s rise trimmed the benchmark index’s steepest weekly loss in two months and that speculation about another stimulus package in China boosted confidence.
The MSCI Asia Pacific Index rose 2.1% on Friday, but fell by around 5.5% over the week. That was the biggest weekly fall since the week ending November 21 last year, when markets sagged to multi-year lows.
Tokyo’s Nikkei rose 2.6% on Friday, but was still down 6.9%. In Hong Kong, the Hang Seng finished 0.1% firmer, but 7.8% down over the week as a whole.
The Australian market finished higher as news of the Bank of America bailout spread and rumours emerged of a possible new stimulus package in China.
At the close, the ASX200 index was 21.4 points, or 0.6%, higher at 3550.9, while the All Ords gained 18.1 points, or 0.5%, to 3494.9.
That was after the market had its worst day for two months on Thursday with a 4% fall.
Centro Properties put on half a cent to 12.5c after its lenders finally agreed to a revamp of its multi-billion dollar debt.
The deal will see control of Centro and its centres move to the banks via a series of debt for equity deals over the next few years.
The media sector was mixed, with Consolidated Media Holdings adding seven cents to $1.93, News Corp adding 9 cents to $13.10, and Fairfax losing 4.5 cents to $1.43. West Australian Newspapers rose 1 cent to $4.76 after the company said its controversial editor, Paul Armstrong had left.
Retailers were mixed, with Woolworths gaining six cents to $26.32, Wesfarmers 10 cents to $16.23, but David Jones dropped four cents to $2.71 and Harvey Norman seven cents to $2.35.
The energy sector was mixed, with Santos adding 28 cents to $14.08, but Woodside fell 52 cents to $33.53 after it
