Monday, January 12, 2009
 Global Market
As credit market softens, stocks harden
Stimulus packages and rate cuts lend a helping hand
Related Tables
New year begins well

Recovery in credit markets and hopes that government stimulus packages and rate cuts across the world would help revive global economies lifted global stocks. The cost of three-month loans between banks in the US and Europe dropped further as concerted government efforts to shore up confidence in the financial system and massive interest rate reductions continued to thaw previously-frozen credit markets.

US President-elect Barack Obama unveiled on 6 December 2008 an infrastructure investment programme, which may top US$150 billion, to create 2.5 million jobs. Japan has unveiled two stimulus packages since October 2008, which include spending about 10 trillion yen ($110 billion) on employment and aid for households.

The US Federal Reserve on 16 December 2008 slashed interest rates to a target rate of zero to 0.25% from 1%.

The Dow Jones Industrial Average rose 5.31% in the fortnight ended 2 January 2009. It fell 33.8% in calendar year 2008 — its bleakest year since 1931. The Nasdaq posted its worst year ever, with a 40.5% fall in 2008.

Japan’s Nikkei rose 3.16% in the fortnight. It lost 42% in 2008, the biggest annual drop in its 58-year history. In London, the FTSE 100 index advanced 6.41% in the fortnight. It declined a record 31% in 2008

Trading for the fortnight started on a weak note as Asian stocks slipped on increasing signs the deepening global recession is hurting corporate profit. Toyota Motor Corporation, the world’s biggest automaker, on 22 December 2008, forecast its first-ever group operating loss due to a relentless global slide in car sales and a crippling rise in the yen.

Japanese exports plunged at a record annual pace of nearly 27% in November 2008, hit by the fall in global demand and yen’s rise against the dollar, data on 22 December 2008 showed.

The Shanghai Composite fell 4.55% on 23 December 2008 after China’s central bank trimmed interest rates by 27 basis points after trading hours on 22 December 2008, disappointing some investors in a move that was smaller than expected given the aggressive actions by other central banks.

In more evidence of the deteriorating US housing market, data on 23 December 2008, showed the pace of existing home sales plunged a record 8.6% in November 2008 and new-home sales fell 2.9% last month. Another data on the same day showed, US gross domestic production (GDP) fell 0.5% in the July-September 2008 quarter.

Japan’s Nikkei average posted its highest close in six weeks on 26 December 2008, as investors bet a raft of government measures will help the global economy recover next year.

Oil and commodity stocks led gains in Asian and European stocks on 29 December 2008 as crude oil prices rose due to a flare-up of violence in the Middle East. Israeli warplanes pounded the Hamas-ruled Gaza Strip for a third consecutive day as the Jewish state prepared to launch a possible invasion amid the intensifying clashes between the two sides.

US stocks rose on 31 December 2008 as fresh efforts to stem the recession from Washington boosted sentiments. On 30 December 2008, the US Federal Reserve provided clarity on its plan to reduce mortgage costs and set a goal to buy $500 billion in mortgage-backed securities by mid-2009. By buying back the securities more quickly than expected, investors hope mortgage rates will fall at a faster pace and stimulate the beleaguered housing market.

US stocks started the new year with a big jump as investors looked beyond yet another piece of grim economic data on hopes that a recovery is on the horizon after a disastrous 2008. The Dow Jones industrial average rose 258.30, or 2.94% to 9,034.69 on 2 January 2009, the first trading day of the new calendar year.

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