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World stock markets took another tumble last week with the major US indices penetrating the October lows intraday. The FTSE finished the week down around 4%, but it was UK plc that took a battering. The Pound fell to record lows against the European single currency, even breaking through the synthetic Euro/ Deutsche Mark lows from 1996.The week’s action was all the more damning considering the Eurozone’s admission that it too is in a recession. The Euro managed to end the slightly down against the dollar, but the pound plunged through the 1.5000 level for the first time since 2002. However there is still some way to go before the low of 1.3685 from 2001 is breached.
Financials were amongst the worst performing companies as Libor broke its 23 day decline. 3 month Libor increased to 2.15% and overnight Libor also pushed higher. The main catalyst was Paulson's announcements of changes to the Troubled Asset Relief Program. As this originally was seen as getting to the heart of the matter in terms of offloading toxic assets, investors are confused as to what this means for future prospects for financial firms in the US. In the US, the insurance giant AIG had its earnings estimates cut, as did Wells Fargo. Much worse are the rumours that Fannie May may have to tap into US government cash to avoid liquidation. Previously unaffected stocks such as HSBC were also down hard after poor results, and there was speculation that it too may need to follow Santander's lead in raising money through a rights issue. Until very recently HSBC and Santander were seen as being at arm’s length to the current crisis due to their relatively low exposure to the US housing market. However, with news of the UK property crash worsening and Asian markets faltering, HSBC is coming under increasing pressure.
More than anything market participants hate confusion or indecision, with the common reaction being "if in doubt, get out". This is reflected in the performance of financial shares across the globe. Even when the wider market attempted a rally, financials were weighing on sentiment, like a ship trying to sail with its anchor still deployed.
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Financials were amongst the worst performing companies as Libor broke its 23 day decline. 3 month Libor increased to 2.15% and overnight Libor also pushed higher. The main catalyst was Paulson's announcements of changes to the Troubled Asset Relief Program. As this originally was seen as getting to the heart of the matter in terms of offloading toxic assets, investors are confused as to what this means for future prospects for financial firms in the US. In the US, the insurance giant AIG had its earnings estimates cut, as did Wells Fargo. Much worse are the rumours that Fannie May may have to tap into US government cash to avoid liquidation. Previously unaffected stocks such as HSBC were also down hard after poor results, and there was speculation that it too may need to follow Santander's lead in raising money through a rights issue. Until very recently HSBC and Santander were seen as being at arm’s length to the current crisis due to their relatively low exposure to the US housing market. However, with news of the UK property crash worsening and Asian markets faltering, HSBC is coming under increasing pressure.
More than anything market participants hate confusion or indecision, with the common reaction being "if in doubt, get out". This is reflected in the performance of financial shares across the globe. Even when the wider market attempted a rally, financials were weighing on sentiment, like a ship trying to sail with its anchor still deployed.
For complete article, please click on the link.
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