February 25, 2021

Market Rally in U.S. and Asia Starts to Falter in Europe

The Euro Stoxx 50 index of euro zone blue chips opened higher but was down 0.4 percent by mid-morning, while the FTSE 100 index in London was up 0.2 percent. BNP Paribas, the French bank, fell 3.3 percent, dragging on the European market. Trading in U.S. equity index futures suggested Wall Street stocks would open modestly lower, hardly surprising considering the 4.7 percent rise in the Standard Poor’s 500 index Tuesday, which came a day after the market bombed.

The Fed’s pledge to hold short-term interest rates near zero for at least two more years to support the faltering U.S. economy “has helped to stabilize sentiment in equities and other risky asset markets — at least for now,” analysts at Standard Chartered wrote in a research commentary.

But, they added, “The heavy emphasis on downside risks to growth suggests the pendulum of investor sentiment can quickly rotate back to a more risk-averse stance in coming days.”

Stress indicators suggested that the turmoil would continue.

President Nicolas Sarkozy of France returned from vacation on the French Riviera to meet with officials, including his finance minister and the governor of the Bank of France, on what his office called ‘the economic and financial situation.”

Mr. Sarkozy and other European politicians have come under criticism for vacationing at a time of crisis.

Gold, seen by many investors as a safe haven, continues to trade near record levels, while the dollar remains near its lows against both the Swiss franc and the yen. Indeed, the Swiss National Bank on Wednesday announced new measures to weaken the franc, while Japanese officials said they were prepared to intervene in the currency market to weaken the yen.

Worried investors were looking ahead to a conference call later Wednesday with the Bank of America chief executive, Brian Moynihan. Bank of America has been under pressure, with its share price falling 43 percent so far this year. Mr. Moynihan is expected to discuss his plans for bringing the largest American lender back onto an even keel.

On the heels of the rally Tuesday on Wall Street, Asian shares were stronger across the board. The Tokyo benchmark Nikkei 225 stock average rose 1.2 percent. The main Sydney market index, the SP/ASX 200, gained 2.6 percent. In Hong Kong, the Hang Seng index rose 2.5 percent, and in Shanghai the composite index added 0.9 percent.

The Fed was hoping that its announcement, to which three members of the Federal Open Market Committee dissented, will encourage investment and risk-taking by convincing the markets that the cost of borrowing will not rise until at least mid-2013. Still, it suggests the U.S. monetary authorities are now adopting the same policy pursued by the Bank of Japan over the last decade with marginal effect.

Masaaki Shirakawa the Bank of Japan governor, told Parliament on Wednesday: “The Fed’s latest commitment is close to what we already have in place,” Reuters reported.

The Fed announcement led analysts to revise their outlook for the European Central Bank’s rate policy, as well.

Jörg Krämer, chief economist at Commerzbank in Frankfurt, said he now believed that instead of raising rates again in 2011 the E.C.B. would leave its main interest rate target pegged to 1.5 percent until the middle of next year.

“Thereafter, the E.C.B. would resume the rate normalization process only if the sovereign debt crisis de-escalated,” he added.

U.S. crude oil futures for September delivery rose 3.7 percent to $82.22 a barrel. Comex December gold futures for rose 1.2 percent to $1,764.30 an ounce.

The dollar was mixed against other major currencies. The euro ticked up to $1.4378 from $1.4376 late Tuesday in New York, while the British pound fell to $1.6260 from $1.6316. The dollar fell to 76.67 yen from 76.96 yen — not far from its all-time low of 76.25 yen, set in March — and to 0.7233 Swiss francs from 0.7209 francs.

The Swiss currency fell after the central bank said in a statement that it was “keeping a close watch on developments on the foreign exchange market and on financial markets,” and “if necessary, it will take further measures against the strength of the Swiss franc.” The central bank said it would use an increase in bank overdrafts and currency swaps to “significantly increase the supply of liquidity to the Swiss franc money market.”

Bond prices were mostly higher, with the yield on the benchmark U.S. 10-year Treasury note slipping 2 basis points to 2.23 percent. German 10-year bonds, considered the safest in Europe, traded 7 basis points lower to yield 2.3 percent.

The bonds of Italy and Spain, which have been in the spotlight since the European Central Bank intervened in the secondary market to support Rome and Madrid as they battle to restore market confidence in their finances, were also slightly higher. The Italian 10-year fell 6 basis points to yield 5.09 percent, while its Spanish counterpart fell 6 basis points to yield 4.97 percent.

Analysts at LGT Capital Management commented in a note on Wednesday that policy makers should be able to stabilize the market in the United States, “given that the economy is not in recession and many companies remain financially strong and profitable.”

But they added that it remained to be seen whether the new measures would produce a lasting effect.

“We believe that uncertainties about the economy and the debt issues are likely to persist for a while, and exert pressure on markets again in the near future,” they wrote.

Article source: http://feeds.nytimes.com/click.phdo?i=49e3d99f69f0f14d83c6a16e28cd43d8

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