The US Federal Reserve has gone from plugging 10 billion dollars or 20 billion dollars in liquidity injections to adding another zero on the figure. Reports this week have the US Federal Reserve plugging a massive 200 billion dollars in liquidity!
But that’s not all. They have also said they will accept mortgage bonds as collateral. They’ve opened the terms of borrowing from 30 days to 90 days and they have guaranteed 30 billion dollars of Bear Stearns most risky assets so that JP Morgan will take them over.
It’s an extraordinary time and with extraordinary moves. The share market isn’t sure which way it is going. It’s trading up, down and everywhere.
On Wednesday, the DOW had its biggest one day gain since July 2002 on the back of the interest rate decision to cut interest rates by 0.75% to 2.25% in the US. On Thursday, the market was back down.
Earnings reports for both Lehman Brothers and Goldman Sachs alleviated fears about the financial sector.
Lehman Brothers topped analysts' views with its 1Q net income of $489 million, or 81 cents a share, although this was down from $1.15 billion a year ago. Its shares rose 38%.
Goldman Sachs also maintained robust profitability in the face of a credit crunch, posting a first-quarter profit of $1.51 billion, or $3.23 a share, down 53% from a year earlier but well above analysts' expectations. Its shares rose 12%.
Meanwhile Japan faces a leadership vacuum beginning today. As of Wednesday, Bank of Japan Governor Fukui’s five year term officially comes to an end. This could not come at a worse time for Japan. They rapidly need to find a replacement.
Consolidation has continued in the mining sector. Australian listed Lihir Gold has announced a $1.1 billion takeover of Equigold.
On Wednesday, the Bank of England pumped 5 billion pounds into the money markets. This is the first time since September that they have made emergency liquidity provisions.
Jobless claims in Great Britain came in at the lowest in 3 years in February with businesses continuing to hire.
A stronger Euro has resulted in a widening of the trade deficit with the Euro-Zone Trade balance for January coming in at a deficit of $10.7 billion.
Volatile. Nervous. Precarious. These are just a few words to describe the current state of the market. This week was once again another volatile week with the up and the down movements being led by the US. For the longer term investor, I guess the stock market is on sale. The only problem is who wants to buy when you may be able to bag a bigger bargain in a week or a month’s time. Until confidence is restored to the market, expect the market to continue to be up, down and everywhere.
Head of Fundamental Analysis
HUBB Financial Group