World Financial Crisis

Markets rebound after European rescue packages announced

Article published on the 2008-10-14 Latest update 2008-10-14 13:31 TU

A Philippino trader smiles in Manilla.
(Photo : Reuters)

After a week where world stock indexes lost one fifth of their value, Monday saw historic gains. It was the best single-day gain in 20 years for the CAC 40. The Dow Jones leaped more than 900 points for its biggest points rise ever. London’s Ftse 100 recouped half of last week’s losses in its second best day. Tokyo’s Nikkei 225 index regained more than 14 per cent in its biggest percentage rise ever.

Some of the US’s biggest companies also had eye-popping gains. Former Wall Street investment bank Morgan Stanley saw its stock price rise 85 per cent on Monday following news that it had secured a nine billion dollar (6.5 billion euro) cash injection from Japan’s Mitsubishi. American automaker General Motors jumped 33 per cent on rumours of a merger with rival Chrysler.

It was the first positive response to unprecedented government efforts to shore up the failing international banking and financial system with public money.

Washington was first with its 700 billion dollar (513 billion euro) bailout, and Britain was close behind with its estimated 500 billion pound (614 billion euro) package, but yesterday Europe followed suit. Announcements to invest public money in banks were made in Paris, Berlin, Madrid and Vienna, for an EU total of more than 1.7 trillion euros.

Professor Chris Higson of London Business School said however that "one shouldn't get too excited about five and ten per cent increases given the level that we'd got to last week."

 

After a weekend meeting where the European bailout was coordinated, French President Nicolas Sarkozy pledged 360 billion euros, with an additional 40 billion set aside to invest in French banks. German

Chancellor Angela Merkel added a 500 billion euro rescue plan for her country. Spain and Austria each pledged 100 billion euros for bank buyouts, interbank lending and bond guarantees.

Amid fears that this market rebound could turn out to be what Wall Street calls a “sucker’s rally” where single-day gains get investors’ hopes up, only to have them crushed with further declines, attention now turns to Washington, where an announcement is expected that the US will follow Europe’s example by taking a direct public stake in private banks.

Elsewhere

Iceland: Trading has resumed on the country's stock exchange Tuesday. The main index dropped over 76 per cent but this was due in part to the absence of trading in financial companies.

Hong Kong: Financial secretary John Tsang has said all bank deposits will be guaranteed until 2010.

Ireland: The European Commission has approved the Irish government's revised plans to guarantee bank deposits. It said it found the "revised scheme to be compatible with EU state aid rules."

Germany: Economic think tanks have forecast growth of 0.2 per cent in Germany saying that the country is set to enter recession.

Spain: Santander has taken over the US bank Sovereign for 1.4 billion euros.

Belgium: The new Fortis Holding group has been quoted on the Brussels stock exchange.

Japan: Japanese financial group Nomura Holdings has finished its acquisition of parts of Lehman Brothers. Meanwhile the governor of the Bank of Japan called a meeting today to consider "recent developments on world financial markets".

US: General Motors said on Monday that it was in talks concerning a possible merger. It has not confirmed that it is considering a fusion with Chrysler.

UK: Inflation hit a 16 year high in September.