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Markets Look to Rally
Tags: Commodities, Corporate News, Currencies, Foreign Markets, U.S. Futures
Foreign Markets
Asian stocks rallied for the first time in three days after China announced a $586 billion package to revive growth in the world’s fourth-largest economy. China’s CSI 300 Index jumped 7.4%, and Japan’s Nikkei 225 Stock Average rose 5.8%. In Europe, Dow Jones Stoxx 600 Index advanced 2.4%
U.S. Futures
As of 8:00 AM EST.
Following the lead of the foreign markets, Dow futures rose 133 points, Nasdaq futures are up 20.50 points, and the S&P 500 is advancing almost 1.5%.
Currencies and Commodities
The yen declined for a second day against the euro and the dollar on speculation China’s $586 billion stimulus package will give investors confidence to buy higher-yielding assets using money borrowed in Japan. Crude oil for December delivery rose upwards of 6.1% to $64.74 a barrel as investors see demand increasing on the heels of the news from the Chinese government. Precious metals spiked overnight as gold rose 2.56% an ounce while silver gained 3.53%.
Corporate News
AIG and the U.S. government are close to a deal that would revise a proposed $123 billion bailout with a new $150 billion package; making borrowing terms easier. AIG reported it lost $24.47 billion or $9.05 per share in the 3rd quarter, after a profit of $3.09 billion, or $1.19 per share, a year ago. Revenue declined 97% to $898 million from $29.84 billion in the third quarter 2007.
Power generator NRG Energy Inc. turned down an unsolicited $6.1 billion all-stock bid from nuclear power and utility operator Exelon Corp., which would have created the largest power company in the country.
Moody’s Investors Service has downgraded the insurance financial strength rating of MBIA Insurance Corporation (MBIA) and supported insurance companies to Baa1 from A2.
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The question is not whether or not the U.S. Federal Reserve Bank will cut its benchmark lending rate today, but if in fact the cut will have any impact on our wounded economy.
Whether the cut is .25 or .75 points – either of which would bring the rate to an all-time low, economists fear that the benefits simply won’t trickle down the consumer. Recent rate cuts have done nothing to boost the consumer credit market because given current economic conditions, the banks that aren’t going under find that issuing consumer loans at anything else than a premium is far too risky.
A great example of this is the current market for auto loans. Typically influenced by the prime rate, which was roughly 4%, Monday, the interest for a 48-month new car loan is 6.8%.
With Americans now hoarding their money and growing increasingly content with simply not losing their hard-earned greenbacks, the Fed may need to expend some of its “extra ammunition” in addition to its imminent rate cut to get consumers to start spending again.
So, what happens when the rate hits zero and its back to the drawing board for Big Ben and his crew? Here’s a great report written by Ben Bernanke himself on potential strategies for monetary policy when the key rate hits zero.
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