New Overnight Developments Abroad: Few Details Emerge About U.S. Bank Rescue Plan
September 22, 2008
Goldman Sachs and Morgan Stanley are converting to bank holding companies subject to Fed regulations, ending investment bank era.
Scant details of a U.S. $700 billion rescue plan to buy and dispatch bad assets emerged over the weekend. Hedge funds to be excluded. Treasury to request debt ceiling increase. Total taxpayer commitments including prior rescues to cost $1.8 trillion. Money market strains remain high abroad; risk premium still over 200 basis points. Central banks added liquidity in Japan ($14 billion) and Australia ($1.7 billion). Swiss National Bank allots $10 billion in overnight repo. ECB allots $40 billion. Only $26.15 billion of bids for Bank of England’s $40 billion tender. Democratic Party congressional leadership wants stronger oversight of the plan.
Concern about the dollar’s outlook is mounting. The U.S. currency fell by 1.2% against the yen, 1.0% against the Swiss franc, 0.9% against the euro, and 0.7% against even sterling. Commodity currencies not doing as well. U.S. dollar fell just 0.4% against the Canadian dollar and 0.2% against the A-dollar, and it is unchanged against the New Zealand kiwi.
The Nikkei rose by a further 1.4%. Elsewhere in Asia, stocks climbed 6.5% in China, 4.7% in Vietnam, 2.4% in Taiwan and 2.3% in the Philippines. But stocks fell 1.7% in Thailand and 0.6% each in India and Singapore.
In Europe, the rally in stocks lost steam. Paris Cac and British Ftse 0.1%, and German Dax -0.1%.
Oil prices climbed further above key $100/barrel level, advancing 1.7% to $106.31. Such have rebounded 16.6% since Wednesday. Gold rose 1.5% and is $17.6% above its close on September 11.
Japan’s all-industry index increased 0.8% in July, more or less as expected, but was just 0.3% higher than in August 2007. Final domestic demand rose 1.3%.
Taro Aso as expected was chosen to lead the LDP and thus will be selected Prime Minister in Wednesday’s affirming vote. He took 67% of the votes, with four rivals splitting the rest. Aso said Japan appears to be in recession and that fixing growth will be a higher priority than fixing the fiscal problems.
Almunia of the EU warned of the risks of a global slowdown. The French Finance Minister Lagarde predicted that the upcoming G7 meeting of finance ministers and central bankers would endorse a U.S. bailout plan for its markets.
In Britain, the Labour Party began its annual conference in a mood of embattlement. The British Rightmove house price index fell 1.0% in September from August and by 3.3% from September 2007.
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