Interest Rate Roundup

Monday, October 06, 2008

Global markets take another header

The hits just keep on coming. The U.S. Dow is down about 480 points as I write, while European and Asian markets got pasted in the overnight session. From Bloomberg:

"European stocks tumbled, sending the Dow Jones Stoxx 600 Index to its steepest drop since 1987, as the yearlong credit market seizure caused bank bailouts to spread and crude's slump dragged down commodities producers.

"BHP Billiton Ltd. slid 9.9 percent and UBS AG lost 13 percent, as raw-material companies and financial firms declined the most in the Stoxx 600. Hypo Real Estate Holding AG sank 37 percent after the German government and state banks were forced to pledge $68 billion to rescue the commercial-property lender. BNP Paribas SA slipped 5.4 percent after saying said it will take control of Fortis in Belgium and Luxembourg.

"The Stoxx 600 sank 7.2 percent to 242.52 at 4:40 p.m. in London, the largest retreat since October 1987. Europe's plunge helped erase about $2.5 trillion from global equities as investors disregarded the U.S. Treasury plan to revive credit markets with a $700 billion bank bailout.

"So far it's been a like a fire-fighting operation,'' said Robert Talbut, chief investment officer at Royal London Asset Management, which oversees about $63 billion. "Markets are reacting to the fact that this whole credit and banking crisis is escalating. Policy makers need to understand that they don't have weeks to make up their minds, they have days or even hours.''

"The SXXP 600 tumbled 33 percent this year as bailouts of financial companies worldwide accelerated and bank credit losses and writedowns approached $600 billion. The index trades at 10.2 times earnings, the lowest since at least 2002."

UPDATE: There was a late day rally that took us from down 800 or so on the Dow to down 370. Scuttlebutt is that global central banks will band together and cut interest rates. I wouldn't be surprised in the least of that did happen. The question is whether it will really matter. The funds rate has been slashed three percentage points in the past year and it doesn't seem to have done much, at least for the stock market.


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