World markets affected by U.S. banking reform
Published: March 15,2010
LONDON — World stock markets fell today as investors fretted about the status of banking reform in the U.S. and awaited confirmation of a rescue package for debt-laden Greece. The British pound slipped amid growing British political and economic concerns.
In Europe, the FTSE 100 index of leading British shares was down 11.19 points, or 0.2 percent, at 5,614.46 while Germany’s DAX fell 9.01 points, or 0.2 percent, to 5,936.10. The CAC-40 in France was 13.02 points, or 0.3 percent, lower at 3,914.38.
Wall Street was also poised to start the new week modestly lower — Dow futures were down 30 points, or 0.3 percent, at 10,543 while the broader Standard & Poor’s 500 futures fell 4.4 points, or 0.4 percent, at 1,142.20.
Given the dearth of economic data in the early part of the week, investors are focusing in on the unveiling of a new banking bill in the U.S. — scheduled for Tuesday.
Investors remain unsure whether the bill will gain support from the U.S. Senate — last week financial stocks were in demand on expectations that the bill would fail to get the necessary support from the Senate.
However, there are signs that many Republicans may back some sort of bill, including giving the U.S. Federal Reserve more regulatory powers.
“Banking regulation has been a sour point across the world since the credit crunch led to many high profile failures,” said James Hughes, market analyst at CMC Markets.
“It seems it has been a long time in coming and many are skeptical whether giving more power to the Fed would make any difference,” he added.
Whatever happens on the regulatory front, the Fed will take center stage on Wednesday, when its rate-setting body issues its latest policy statement.
Though no one thinks there will be any change in the benchmark Fed funds rate from the current 0-0.25 percent, investors will be on the lookout for any changes in the statement accompanying the rate decision.
Neil Mackinnon, global macro strategist at VTB Capital, thinks the Fed will continue to make a distinction between its interest rate policy and its liquidity policy, paving the way for continued low borrowing costs.
Though the Fed will at some stage likely amend the language in the statement to signal to markets that the monetary landscape is changing especially in the light of stronger economic data, Mackinnon said the likely inclusion of Janet Yellen on to the Fed board of governors plus other candidates who are seen as dovish “is a positive for risk assets, especially equities, given that interest rate policy will remain accommodative for some time.”
The British pound slid Monday as investors continued to worry about a political deadlock following the upcoming general election — opinion polls over the weekend continued to point to a so-called “hung parliament” when no one party has a majority. By late morning it was 0.8 percent lower at $1.5045 on the day.
Many investors worry that such as a situation would augur a period of instability and make dealing with the British deficit more difficult.
A warning from credit ratings agency Moody’s that Britain, along with the U.S., are more likely than their triple A peers Germany and France to lose their top rating did little to inject a dose of optimism in the pound’s fortunes.
In Europe, the focus will also be on Greece following weekend reports that the eurozone countries will provide the country with some sort of financial guarantee as it tries to tap the bond markets for money to plug its deficit.
Greece has the unenviable task of financing around €55 billion of debt maturing this year, with €20 billion due in April and May — the rise in Greek bond yields makes it more expensive to service the debt and that is why Greek Prime Minister George Papandreou is looking for some sort of support from eurozone partners, particularly Germany.
Earlier in Asia, Japan’s Nikkei 225 stock average finished little changed at 10,751.98.
Hong Kong’s Hang Seng was down 0.6 percent at 21,079.10 and South Korea’s benchmark shed 0.8 percent to 1,649.50.
Elsewhere, Shanghai’s market fell 1.2 percent after China’s yearly policy meeting ended without new measures investors were hoping for to boost domestic consumption, renewable power and other fields.
“The meeting was pretty much about talk rather than substance,” said Zhang Kun, an analyst for Guotai Junan Securities in Shanghai.
Markets in Australia and Taiwan also fell.
Oil prices were lower, with benchmark crude for April delivery down 49 cents to $80.75 a barrel.
The euro was down 0.5 percent at $1.3712 while the dollar was steady at 90.66 yen.
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