Tuesday, January 22, 2008

FED emergency rate cut!

The Federal Reserve lowered its benchmark interest rate in an emergency move for the first time since 2001, to 3.5 percent from 4.25 percent.

Politicians are scrambling to offer a stimulus package, and Fed Chairman Ben Bernanke is slashing interest rates. But they may be paving the way for a bigger calamity down the road.

The Bank of Japan kept its benchmark interest rate at 0.5 percent and said economic growth was slower than forecast, stoking speculation borrowing costs may be cut this year.

Dow Jones industrial average futures on Monday dropped 546 points or 4.5 percent. Should the Dow close lower on Tuesday by the amount the futures suggest, it would rank as the fourth-largest point loss ever for the blue-chip index. At the beginning of the week, the S&P 500 was trading at 13.82 times forward earnings, Reuters Estimates said, below a historic average of about 15 percent.

This week could mark the end of the bull market for Wall Street, with U.S. stocks likely to join a global equity market plunge triggered by fears of a U.S. recession.

The U.S. economy may be "one shock'' away from a recession, Lehman Brothers said, pointing to the global slump in equity markets as a possible "tipping point.'' Lehman sees the odds of a recession at 40 percent, rising from a "1-in-3 chance'' at the beginning of the year.

Europe is no longer ruling out a U.S. recession but could weather it, finance ministers from the euro zone said on Monday. "The economic situation in the U.S. is in no way comparable to that in Europe or the euro zone," according to Jean-Claude Juncker.

The European economy may be starting to suffer collateral damage from the U.S. subprime mortgage slump prompting ECB rate cut bets.

Euro Set for Dollar-Like Swoon as Wages Brake Growth. "Investors who are looking for growth are allocating out of the euro,'' Yu said. UBS is the world's largest currency trader after Deutsche Bank AG. "We really don't see value in the euro-zone economy,'' the Zurich-based strategist said.

The head of the International Monetary Fund called the global economic situation "serious" and said markets worldwide had responded skeptically to a U.S. stimulus plan.

Ambac Financial Group Inc., the first bond insurer to be stripped of its AAA credit rating, reported a $3.26 billion quarterly loss and said it is evaluating options with "a number of potential parties.'' The fourth-quarter net loss equated to $31.85 a share.

ACA Capital Holdings Inc., the bond insurer being run by regulators after subprime-mortgage losses, won a month's grace to unwind $60 billion of credit-default swap contracts that it can't pay.

Bank of America Corp., the second- largest U.S. bank, said earnings dropped 95 percent after $5.28 billion of mortgage-related writedowns and higher provisions for future loan losses. Payments more than 60 days due on credit cards climbed to 5.08 percent of outstanding loan balances from 4.86 percent in the third quarter.

Fifth Third Bancorp, Ohio's second- largest lender, said fourth-quarter earnings dropped because of an insurance payout and higher provisions for loan losses. Total non-performing assets more than doubled to $1.1 billion from $455 million at the end of last year's fourth quarter. The provision for loan and lease losses more than doubled to $284 million.

Lone Star Funds, a Dallas-based buyout firm, may buy parts of the distressed German banks WestLB AG and IKB Deutsche Industriebank AG.

The risk of companies defaulting rose to a record on concern credit rating downgrades at bond insurers including Ambac Financial Group Inc. will cause bank losses to surge. Credit-default swaps on the Markit CDX North America Investment-Grade Index rose 12 basis points to 122 at 7:32 a.m. in New York. Credit-default swaps on the Markit iTraxx Europe index of 125 investment-grade companies rose as much as 10.25 basis points to a record 92.5 today.

Standard & Poor's may trim its top ratings on as many as 22 asset- and mortgage-backed securities insured by Ambac Financial Group Inc. as the effect of the bond insurer's downgrade spread to emerging markets.

Turkey's economic expansion will probably remain subdued and the government may be forced to sell bonds more cheaply as fallout from the U.S. subprime crisis spreads to emerging markets, Economy Minister Mehmet Simsek said.

Institutions handling $1.5 trillion, are holding or selling. They say stocks are riskier today than they were during that last correction in 2003, even though valuations are half as much.

Hong Kong's Hang Seng Index had its biggest drop in six years on Monday after BNP Paribas said Bank of China Ltd. may write down overseas securities by $4.8 billion because of losses from U.S. subprime mortgages.

X5 Retail Group NV, Russia's largest supermarket company, said fourth-quarter sales rose 57 percent after it added stores and fewer people shopped at open markets.

William Morrison Supermarkets Plc, the smallest of Britain's four main grocery chains, said sales growth accelerated over the Christmas holiday on increased advertising and a wider range of fresh foods.

In der zweiten Jahreshälfte besaßen in Deutschland nur noch 3,8 Millionen Anleger Aktien, das waren 571.000 oder 13,2 Prozent weniger als im Halbjahr zuvor.

Swiss retail sales rose 2.9% in November up from 2.2% from the previous month. Although the number was weaker than the 4.0% that was expected, it still shows robust consumption.

UK manufacturers showed that they are resilient despite the pessimistic outlook that has been prevalent the past few months. The CBI Industrial trends report showed that total orders for January remained unchanged form December at +2. Additionally, it showed signs of continued demand as +11 of the balance of manufacturers reported increasing orders.

Asian stocks plunged for a second day, sending the region's benchmark to its biggest decline since April 1990, on concern the global economy is slowing. Japan's Nikkei 225 Stock Average sank 5.7 percent to 12,573.05. Australia's All Ordinaries Index fell 7.3 percent, the most since October 1989. India's Sensitive Index fell 5 percent, paring an earlier loss of as much as 13 percent. India's Finance Minister P. Chidambaram urged investors to "stay calm'' after the Sensex plunged the most in almost 16 years, triggering a one-hour trading halt. It has now slumped almost 20 percent from its closing peak on Jan. 8.
European stocks failed to sustain gains following emergency interest-rate cuts by U.S. Federal Reserve on concern the reductions may not be enough to thwart recession. National benchmarks retreated in 13 of the 18 markets in western Europe. The U.K.'s FTSE 100 fell 1.1 percent, and France's CAC 40 decreased 1.6 percent. Germany's DAX Index gained 2.7 percent.

U.S. overnight and premarket:

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