March is almost finished and US share markets staged their first back to back rally of the year last week, even though the impetus slowed in Friday’s 2% fall.
Still, a two week rally is not to be sneezed at, even if Friday saw an outbreak of realism ahead of the defining announcement from the Obama Administration tonight our time on reforming banking regulation and more details on helping them get rid of toxic assets.
The Standard & Poor’s 500 Index rose 1.58% last week to be up 14% percent from the 12-year low of 676.53 on March 9. The Dow ended up 0.75% at 7,278.38; Nasdaq advanced 1.8% to 1,457.27.
At one stage late last week the S&P 500 had risen 20% from that March 9 low.
The S&P 500 Utilities Index had its biggest rise in 19 years as the Fed’s Quantitative Easing saw interest rates fall sharply, helping make utilities more attractive to investors.
GE fell, losing 5.8% on Friday after four analysts cut their estimates for 2009 per-share profit. In a review of its finance arm for investors, GE backed a previous estimate of earnings of $US5 billion for its troubled GE Capital for 2009.
But GE said profit would be closer to $US2.5 billion if this month’s economic conditions in the US were to prevail for the full year. (Who says they won’t?)
The GE news and renewed worries about the banks saw financial stocks shed earlier gains and end the week just slightly higher, all but wiping out a 20% gain.
Banks rose after the Fed’s announcement, then fell in the next two days. Bank of America Corp. added 7.5% for the week and the other ‘zombie bank’, Citigroup assets, rose 47% to $US2.62. The price has more than doubled in the past fortnight.
Bloomberg pointed out that US bank stocks were up 54% at one stage from the 12-year low reached March 9 on speculation the worst of the financial crisis is over after Citigroup, Bank of America and JPMorgan Chase & Co. said they were profitable in January and February. But those profits were before taxes and asset valuation charges.
But Bank of America, Well Fargo and Goldman Sachs all suffered sharp falls on Friday.
The debate over executive bonuses and payments is not treating banks well, especially when CEOs reject some of the comments and make noises about continuing to make payments.
Many of these banks have huge capital injections from the US Government and they still can’t see the sense of reining in talk about executive pay.
When new regulations are released this week on capital restrictions on banks (they should mirror tougher rules proposed in the UK on Thursday) then watch the bank CEOs and others squeal.
The rules will lift the amount of capital banks have to allocate to certain types of assets: investment banking won’t be banned, but the capital requirements will be tough.
The UK is also talking about following the Swiss example and imposing a maximum gearing ratio bank balance sheets.
Analysts said the higher capital requirements will put enormous downward pressure on bank payment, especially bonuses. So the squeals will be loud and long.
They will all be self -interested and not relevant. After all the US Government and American taxpayers have saved every major US bank from collapse or severe losses.
The CEOs, boards and many US commentators, still don’t understand that, despite participating or helping drive huge, debilitating losses.
European sharemarkets also rose for a second week, led by banks in the UK, Germany and France.
The Dow Jones Stoxx 600 index rose 2.4% on Friday and is now up 9.3% since reaching a 12-year low on March 9. But that has only trimmed the year’s losses to 13%.
National benchmark indexes climbed in all 18 western European markets except Luxembourg last week . London’s FTSE 100 rose 2.4%, Germany’s Dax added 2.9%, and France’s CAC 40 rose 3.2%.
The Eurofirst 300 index as a whole rose 2.16% over the week – it has now lost 13.6% for the year.
Shares in Asia-Pacific fell on Friday for the first time in a week on Friday.
But they still posted their biggest weekly rally since August 2007.
The MSCI Asia Pacific Index rose 6.4% last week, adding to last week’s 3.9%. Tokyo’s Nikkei rose 5% in a holiday-shortened week; Hong Kong’s Hang Seng Index rose 2.5% and South Korea’s Kospi Index rose 4%.
The Australian market will start around 20 points lower, according to the ASX Share Price Index trading overnight Friday.
That was after the local market finished lower on Friday, but up on the week.
The ASX200 index closed 0.4% lower, and the All Ordinaries index was down 0.3%. Financials lost 1.9% for the day, while materials rose 2.4% and energy gained 0.6%.
For the week, the ASX200 rose 3.6% while the All Ords added 3.4%. The ASX200 has risen 10.2% in the past two weeks.
Investors will be digesting yesterday’s comments by Prime Minister Kevin Rudd who said it is virtually impossible for Australia to avoid slipping into recession.
Mr Rudd said in an interview that the global economic recession will get worse before it gets better.
"It’s clear that the impact of a worsening economic global recession will make it virtually impossible for Australia to sustain a positive economic growth for the period ahead, with impacts, of course, for budget and employment, which underlines the importance of global action in response to the global recession," he told the Nine Network.
Mr Rudd told Laurie Oakes that the May budget needed to be really tough.
