How Deep a Cut? (18-03-2008)

If there was anything that could curb the market plunge during Monday’s session, it was the hope of fresh rate cuts by the Fed, which will issue its decision later today. Financial shares were badly hurt in the wake of the Bear Stearns fire-sale, with Bear losing up to 97% of Fridays closing price, while Lehman Bros. share declined by 35%. An yet, the Dow staged a later day rally, although both the NASDAQ and the S&P ended down.

 In the Asia Pacific region most markets rose on the strength of financial shares, as investors speculated that the Federal Reserve is about to announce a deep interest- rate cut in the wake of the discount rate cut of Sunday evening. Mitsubishi UFJ climbed 2.5%, while Mitsui Sumitomo Insurance Co. surged 6.6%. National Australia Bank advanced 3.3% and Australia & New Zealand Banking Group gained 2.2%, and HSBC Holdings added 2%. It was a different story in Shanghai, were the Composite extended its losses on fears that the government is going to tighten measures to fight inflation.

 The dollar continues to remain weak in view of the apparent certainty of a coming rate cut, which will cause it to fall further, while oil prices stabilized around $106 after falling sharply by $4 overnight on fears that demand will decrease.

 European bourses also gained from early morning, extending gains by midday as here too, banks led the rally on growing rate cut hopes, with UBS gaining 11% and Credit Agricole adding over 7%.

 The same hopes were sending U.S. market futures strongly higher by 12:30 GMT, meanwhile both Goldman Sachs and Lehman Bros. posted substantial but better than expected quarterly losses and Core Producer Prices rose more than expected in February

Source: ISFM