US rate cut hopes offer respite
Sunday, 2 December 2007
Michael Mackenzie in London and Geoff Dyer in Shanghai, FT Syndication Service
Growing expectations of a US interest rate cut within the next two weeks on Friday delivered a much needed respite to stock markets - but not enough to stem one of the worst monthly performances for global stocks in recent years.
Stocks in HK, Japan, Europe and London all gained on Friday on the back of a speech by Ben Bernanke, the Federal Reserve chairman, which investors took to be a clear hint the Fed would cut rates. Markets are so sure of another cut, the speculation has moved on to whether the reduction will be a quarter or half-point. In New York, the markets enjoyed an early surge.
Sentiment was further buoyed by the news that the US Treasury is close to finalising a plan to shore up the domestic housing market by freezing interest rates on subprime loans.
However, the good run of recent days cannot disguise a dismal month for equities. In New York the S&P 500 was up 2.8 per cent for the week at 1,481.14. Yet, this still left the index down 4.4 per cent in November - its worst monthly performance for nearly five years.
In Asia, Hong Kong's benchmark index fell 8.6 per cent, its worst monthly drop in more than three years. Shanghai fell 2.6 per cent on Friday, taking its November loss to 18.2 per cent, its biggest monthly fall since July 1994.
In London, the FTSE closed the week 2.7 per cent higher at 6,432.50. But the index lost 4.3 per cent last month, its weakest performance for more than a year.
The FTSE Eurofirst 300 index gained 3.4 per cent this week and reduced its losses for the month to 4.3 per cent - still its worst month since May last year.
On Thursday night Mr Bernanke said he recognised the "tightening in financial conditions" had the potential to hurt the economy. Further rises in bank borrowing rates on Friday showed financial institutions remain reluctant to lend cash to each other as they conserve their balance sheets as the end of the financial year approaches.
"There is a credit crisis and now it appears we will see some relief from the Fed,'' said Tom di Galoma, head of treasury trading at Jefferies & Co. "There is a very good chance that we get a 50 basis point cut."
Interest rate futures are showing 30 per cent expectation of a half-point cut in the Federal funds rate to 4 per cent.
Growing expectations of a US interest rate cut within the next two weeks on Friday delivered a much needed respite to stock markets - but not enough to stem one of the worst monthly performances for global stocks in recent years.
Stocks in HK, Japan, Europe and London all gained on Friday on the back of a speech by Ben Bernanke, the Federal Reserve chairman, which investors took to be a clear hint the Fed would cut rates. Markets are so sure of another cut, the speculation has moved on to whether the reduction will be a quarter or half-point. In New York, the markets enjoyed an early surge.
Sentiment was further buoyed by the news that the US Treasury is close to finalising a plan to shore up the domestic housing market by freezing interest rates on subprime loans.
However, the good run of recent days cannot disguise a dismal month for equities. In New York the S&P 500 was up 2.8 per cent for the week at 1,481.14. Yet, this still left the index down 4.4 per cent in November - its worst monthly performance for nearly five years.
In Asia, Hong Kong's benchmark index fell 8.6 per cent, its worst monthly drop in more than three years. Shanghai fell 2.6 per cent on Friday, taking its November loss to 18.2 per cent, its biggest monthly fall since July 1994.
In London, the FTSE closed the week 2.7 per cent higher at 6,432.50. But the index lost 4.3 per cent last month, its weakest performance for more than a year.
The FTSE Eurofirst 300 index gained 3.4 per cent this week and reduced its losses for the month to 4.3 per cent - still its worst month since May last year.
On Thursday night Mr Bernanke said he recognised the "tightening in financial conditions" had the potential to hurt the economy. Further rises in bank borrowing rates on Friday showed financial institutions remain reluctant to lend cash to each other as they conserve their balance sheets as the end of the financial year approaches.
"There is a credit crisis and now it appears we will see some relief from the Fed,'' said Tom di Galoma, head of treasury trading at Jefferies & Co. "There is a very good chance that we get a 50 basis point cut."
Interest rate futures are showing 30 per cent expectation of a half-point cut in the Federal funds rate to 4 per cent.