Markets Cheer Fed Surprise
The Age
Thursday March 13, 2008
"IT IS actually a good morning for once!" said National Australia Bank senior markets economist David de Garis as he tapped out his daily report.
He was referring to the sharemarket's early 4.6% gain after the US Federal Reserve advertised its $US200 billion ($A217 billion) strategy for boosting financial market liquidity. Five major central banks have once again banded together. Some will increase their existing currency swap arrangements. And the Fed will accept a wider range of securities as collateral against short-term loans including unpopular residential mortgage-backed securities (RMBS), just as the Reserve Bank of Australia is doing. But as BNP Paribas interest rate strategists predicted, the announcement had a "limited and temporary effect". Early sharemarket enthusiasm waned in Australia, Japan, Korea and other Asian countries, with most finishing about 1.5% higher. European markets last night opened with similar gains but by mid-session had eased slightly. By the close in Australia, the S&P/ASX 200 Index was up 123.7 points, or 2.4%, at 5257.9, having tapered off gently throughout the session. Among the biggest stocks, St George Bank and Macquarie Group climbed 7.5%, Westpac gained 6.1% and ANZ jumped 5.8%. Babcock & Brown added 12.2% while property investor City Pacific leapt 45.6% on the news it had sold its stake in the Townsville Ocean Terminal for $30 million. White Funds Management managing director and portfolio manager Angus Gluskie said the Australian market had been falling on fear rather than fundamentals, so the move by the Fed and a buoyant session on Wall Street enabled if to hold on to half its initial gains. The Dow Jones bounced back from the doldrums, notching up its biggest one-day gain in five years. It closed near its high of the day with a gain of 3.6%. "People can see that some of the risks that are out there are receding as the Fed takes action in the US," Mr Gluskie said. Also, some investors who had expected individual stocks to fall further had been forced to cover their short positions by buying the shares back at higher prices. Macquarie Group international economist Mark Tierney said that in theory the Fed's creative initiative could have a long-lasting impact on financial markets. But the offer was not a "silver bullet", even though it indicated the Fed might consider buying some RMBSs and putting them on its balance sheet, rather than just taking them as collateral. "That's the path they have put themselves on," Mr Tierney said. On the commodities markets, base metals fell more than 5% on the London Metal Exchange and gold sold near $US975 an ounce. But oil remained near record levels, with oil futures reaching $US109.72 on Tuesday night and the spot price at $US108.61 a barrel in New York last night. The high price of oil - combined with rising interest rates and the threat of a US recession - has crushed consumer confidence in Australia. The Westpac-Melbourne Institute Index of Consumer Sentiment slumped 9.1% this month, to its lowest in nearly 15 years. Consumer sentiment has declined to 88.6, where 100 is neutral, with equal numbers of optimists and pessimists. Back on the sharemarket, Incitec Pivot gained $4.65 to $135.59 after an initially rough reception to its announcement that it would buy explosives maker Dyno Nobel. The latter gained a further 1? to $2.50. Among the property trusts included in the S&P/ASX 200 property trusts index, Valad Property Group performed best, rising 7.1% to 83.5?. Centro Retail Group rose 4.4% and Tishman Speyer added 4.3%. But property trusts have lost more than a third of their value in the past three months as investors shied away from debt and complexity. Australian Unity Investments' head of property, Martin Hession, said property trusts were not actually property, because they were dramatically affected by sharemarket momentum. But he said the property cycle had probably peaked. And property prices were likely to decline, particularly if the US went into a prolonged recession.
© 2008 The Age
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