Financial shares made spectacular gains after news of a US rescue plan and a ban on short-selling boosted the ailing sector.
The FTSE 100 Index was up by more than 6% - or 300 points - after bluechips including Royal Bank of Scotland and Lloyds TSB rose in excess of 30%.
The turnaround in sentiment came after the Financial Services Authority banned "short-selling" of listed financial firm stocks - in which traders look to profit from falling share prices - to try to quell the turmoil in the market.
And the mood for markets worldwide was boosted after US Treasury Secretary Hank Paulson said he was hatching a plan to rescue banks from the "toxic" assets that have led to the crisis.
New York's main share index responded by posting its biggest gain for nearly six years - up 410 points or nearly 4%.
Matt Buckland, a dealer at CMC Markets, said central government intervention had boosted markets worldwide. He said: "The combined efforts are so great that there seems to be a coherent belief that this could actually be sufficient to draw a line under what has been a tumultuous 18 months for the markets."
The ban on short-selling in financial shares looked to have removed uncertainty facing shares across the beleaguered banking sector.
Under the Financial Services Authority (FSA) ruling, traders are not allowed to "short" positions in listed financial companies - a practice known as "short selling". The ban came into force at midnight and will last for at least the next four months.
"Short-selling" is when investors borrow stocks in a company to sell them, hoping to buy them back at a cheaper price later on and return them, pocketing the difference as profit.
The practice has been blamed for a run on HBOS shares this week, which led to the group agreeing a £12 billion takeover offer from rival Lloyds TSB.
Showing posts with label Markets. Show all posts
Showing posts with label Markets. Show all posts
2008-09-19
2008-09-18
Six central banks flood markets with cash (Roundup)
Frankfurt - Six major central banks pumped billions of US dollars of extra short-term credit into the world's financial markets Thursday, amid fears that this week's crisis was drying up liquidity.
European share prices steadied after the joint operation, which was triggered by the growing reluctance of commercial banks to lend one another money in a week where one financial institution after another has succumbed.
Commercial banks scrambled for the new money in Frankfurt, with 61 banks bidding for 100 billion dollars in an auction quickly organized by the European Central Bank (ECB).
The money came from the US Federal Reserve by way of swaps. The Fed said the joint operation had made available 247 billion dollars outside the United States to bridge shortfalls of dollars, thus quadrupling dollar availability.
The swap arrangements were to last till January 2009.
The biggest taker, the ECB, said its dollar funding operations would more than double from the existing 50 billion dollars to 110 billion dollars. The measures were 'designed to address elevated pressures in the short-term US dollar funding markets.'
The ECB said it lent a total 40 billion euros Thursday in the initial auction, setting the minimum interest rate at 4.0 per cent. Commercial banks can borrow the central banks' dollars by using their own financial assets as security.
Thursday's injection was the latest of a several interventions by central banks this year to ward off a crisis.
The Swiss National Bank is to inject 27 billion dollars into markets and the Bank of Japan (BOJ) valued its part in the currency swap with the Federal Reserve at 60 billion dollars. The Bank of Canada was also involved.
The Bank of England said it would pump 40 billion dollars into markets.
'These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,' the Bank of England said.
European share prices steadied after the cash injections.
Germany's bellwether index, the DAX, rose 0.9 per cent to 5913 by early afternoon. London's FTSE 100 index rose 1.6 per cent to 4989. The CAC 40 in Paris gained 0.6 per cent to 4025.
Robert Halver, a markets analyst at Baader Bank, said in Frankfurt, 'The central banks are letting liquidity flood through every crack to stop the domino effect among financial institutions.'
He was referring to the series of crises that began with Monday's failure of Lehman Brothers in New York and culminated Thursday in British bank Lloyds taking over mortgage lender Halifax Bank of Scotland for 12.2 billion pounds.
European share prices steadied after the joint operation, which was triggered by the growing reluctance of commercial banks to lend one another money in a week where one financial institution after another has succumbed.
Commercial banks scrambled for the new money in Frankfurt, with 61 banks bidding for 100 billion dollars in an auction quickly organized by the European Central Bank (ECB).
The money came from the US Federal Reserve by way of swaps. The Fed said the joint operation had made available 247 billion dollars outside the United States to bridge shortfalls of dollars, thus quadrupling dollar availability.
The swap arrangements were to last till January 2009.
The biggest taker, the ECB, said its dollar funding operations would more than double from the existing 50 billion dollars to 110 billion dollars. The measures were 'designed to address elevated pressures in the short-term US dollar funding markets.'
The ECB said it lent a total 40 billion euros Thursday in the initial auction, setting the minimum interest rate at 4.0 per cent. Commercial banks can borrow the central banks' dollars by using their own financial assets as security.
Thursday's injection was the latest of a several interventions by central banks this year to ward off a crisis.
The Swiss National Bank is to inject 27 billion dollars into markets and the Bank of Japan (BOJ) valued its part in the currency swap with the Federal Reserve at 60 billion dollars. The Bank of Canada was also involved.
The Bank of England said it would pump 40 billion dollars into markets.
'These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,' the Bank of England said.
European share prices steadied after the cash injections.
Germany's bellwether index, the DAX, rose 0.9 per cent to 5913 by early afternoon. London's FTSE 100 index rose 1.6 per cent to 4989. The CAC 40 in Paris gained 0.6 per cent to 4025.
Robert Halver, a markets analyst at Baader Bank, said in Frankfurt, 'The central banks are letting liquidity flood through every crack to stop the domino effect among financial institutions.'
He was referring to the series of crises that began with Monday's failure of Lehman Brothers in New York and culminated Thursday in British bank Lloyds taking over mortgage lender Halifax Bank of Scotland for 12.2 billion pounds.
Central Banks Offer Extra Funds to Calm Money Markets (Update6)
Sept. 18 (Bloomberg) -- The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s.
The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion ``to address the continued elevated pressures in U.S. dollar short-term funding markets.'' The Bank of England, the Bank of Canada and the Swiss National Bank also participated.
Policy makers have struggled to revive confidence in markets this week as investors stockpiled money on concern more financial institutions would fail after the bankruptcy of Lehman Brothers Holdings Inc. and the U.S. government bailout of American International Group Inc. The cost to hedge against losses on U.S. government debt climbed to a record yesterday.
``There's a complete lack of faith in the markets,'' said Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London. ``There's a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act.''
Markets welcomed the announcement, which was made in statements from each central bank at 9 a.m. Frankfurt time at the start of European trading. The cost of borrowing dollars overnight slid to 3.84 percent from 5.03 percent yesterday. It was 2.15 percent last week and reached the highest since 2001 on Sept. 15.
Limit Doubled
The Fed, which is adding $50 billion into its own banking system today, will spray dollars around the world via swap lines with other central banks. They can then auction them in their own markets. The ECB, Bank of England and Swiss National Bank allotted a total of $64 billion for one day today.
``The timing, so early in the trading day, shows both the severity of the strains in the interbank market and as well the authorities' determination to resuscitate orderly functioning of the money markets,'' said Julian Callow, head of European economics at Barclays Capital in London.
Under the new arrangements, the ECB doubled the limit of dollars it can get from the Fed to $110 billion and Switzerland's central bank can offer $27 billion, an extra $15 billion. New swap facilities with the Bank of Japan, the Bank of England and the Bank of Canada amount to $60 billion, $40 billion and $10 billion, respectively. The arrangements are authorized until Jan. 30.
Use as Necessary
The ECB said it would offer $40 billion ``for as long as needed'' in overnight funds to the region's banks. It will also increase by $5 billion the amount it lends for 28 days and 84 days to $25 billion and $15 billion. The Swiss National Bank will boost its 28-day auctions to $8 billion and the 84-day offering to $9 billion. Both were previously $6 billion.
The Bank of Canada said it has decided not to draw on its $10 billion swap facility at this time. The Bank of Japan, whose policy board held an emergency meeting today, said it will use its $60 billion as required by market conditions.
In auctions of their own currencies, the ECB today lent 25 billion euros in one-day money and the Bank of England 66.2 billion pounds in one-week loans.
The joint action is the latest attempt by central bankers to avert the financial crisis which deepened this week after Lehman and AIG tumbled and Merrill Lynch & Co. was sold. The crisis began over a year ago after the U.S. housing market imploded and has pushed the world economy to the brink of recession.
Asian Action
As markets seized up this week, central bankers pushed more than $200 billion into markets with those in Japan, Hong Kong, South Korea and Australia doing so again today.
Wall Street's woes have gone global, forcing the U.K. government to sponsor a rescue of mortgage lender HBOS Plc and Russia to pour money into its banks. Russia's government said today it would invest in the country's stock market when it reopens tomorrow. The official Xinhua News Agency said China will buy equity stakes in state-owned banks to stabilize its market.
Swap lines were first established in December when officials joined forces to boost dollar liquidity around the world after interest-rate reductions in the U.S., the U.K. and Canada failed to ease concerns about bank lending. The Fed increased its link with the ECB in July.
The announcement today boosted European shares and U.S. futures, which have been pummeled this week as contagion spread through financial markets. The Standard & Poor's 500 Index futures expiring in December added 15, or 1.3 percent, to 1,177.9 as of 11:22 a.m. in London. More than $19 trillion has been wiped off the value of global stock markets since Oct. 31.
More May Be Needed
Failure to calm markets will see central banks inject even more cash, said Robert Barrie, an economist at Credit Suisse Group in London. Other options central banks could take include accepting greater collateral denominated in foreign currencies and increasing lending to banks abroad.
``The lack of dollars has been making the financial crisis worse around the world, which is why we now have this coordinated response,'' Barrie said.
Since the credit squeeze began in August 2007, central banks have sought to keep apart the need to soothe markets and to combat inflation. They argue that interest rates are a blunt tool for helping markets and that price pressures prevent them from cutting rates. While the Fed slashed its key lending rate to 2 percent, the central bank has left it there since April. The Bank of Japan kept its key rate at 0.5 percent this week and the European Central Bank increased its benchmark to a seven-year high in July.
If the spasms in the markets continue and threaten to derail growth central bankers may shift, although for now they will want to wait, said Kevin Gaynor, head of economics at Royal Bank of Scotland Group Plc in London.
``Partly this is to keep powder dry and partly because cutting interest rates won't make much difference,'' he said.
The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion ``to address the continued elevated pressures in U.S. dollar short-term funding markets.'' The Bank of England, the Bank of Canada and the Swiss National Bank also participated.
Policy makers have struggled to revive confidence in markets this week as investors stockpiled money on concern more financial institutions would fail after the bankruptcy of Lehman Brothers Holdings Inc. and the U.S. government bailout of American International Group Inc. The cost to hedge against losses on U.S. government debt climbed to a record yesterday.
``There's a complete lack of faith in the markets,'' said Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London. ``There's a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act.''
Markets welcomed the announcement, which was made in statements from each central bank at 9 a.m. Frankfurt time at the start of European trading. The cost of borrowing dollars overnight slid to 3.84 percent from 5.03 percent yesterday. It was 2.15 percent last week and reached the highest since 2001 on Sept. 15.
Limit Doubled
The Fed, which is adding $50 billion into its own banking system today, will spray dollars around the world via swap lines with other central banks. They can then auction them in their own markets. The ECB, Bank of England and Swiss National Bank allotted a total of $64 billion for one day today.
``The timing, so early in the trading day, shows both the severity of the strains in the interbank market and as well the authorities' determination to resuscitate orderly functioning of the money markets,'' said Julian Callow, head of European economics at Barclays Capital in London.
Under the new arrangements, the ECB doubled the limit of dollars it can get from the Fed to $110 billion and Switzerland's central bank can offer $27 billion, an extra $15 billion. New swap facilities with the Bank of Japan, the Bank of England and the Bank of Canada amount to $60 billion, $40 billion and $10 billion, respectively. The arrangements are authorized until Jan. 30.
Use as Necessary
The ECB said it would offer $40 billion ``for as long as needed'' in overnight funds to the region's banks. It will also increase by $5 billion the amount it lends for 28 days and 84 days to $25 billion and $15 billion. The Swiss National Bank will boost its 28-day auctions to $8 billion and the 84-day offering to $9 billion. Both were previously $6 billion.
The Bank of Canada said it has decided not to draw on its $10 billion swap facility at this time. The Bank of Japan, whose policy board held an emergency meeting today, said it will use its $60 billion as required by market conditions.
In auctions of their own currencies, the ECB today lent 25 billion euros in one-day money and the Bank of England 66.2 billion pounds in one-week loans.
The joint action is the latest attempt by central bankers to avert the financial crisis which deepened this week after Lehman and AIG tumbled and Merrill Lynch & Co. was sold. The crisis began over a year ago after the U.S. housing market imploded and has pushed the world economy to the brink of recession.
Asian Action
As markets seized up this week, central bankers pushed more than $200 billion into markets with those in Japan, Hong Kong, South Korea and Australia doing so again today.
Wall Street's woes have gone global, forcing the U.K. government to sponsor a rescue of mortgage lender HBOS Plc and Russia to pour money into its banks. Russia's government said today it would invest in the country's stock market when it reopens tomorrow. The official Xinhua News Agency said China will buy equity stakes in state-owned banks to stabilize its market.
Swap lines were first established in December when officials joined forces to boost dollar liquidity around the world after interest-rate reductions in the U.S., the U.K. and Canada failed to ease concerns about bank lending. The Fed increased its link with the ECB in July.
The announcement today boosted European shares and U.S. futures, which have been pummeled this week as contagion spread through financial markets. The Standard & Poor's 500 Index futures expiring in December added 15, or 1.3 percent, to 1,177.9 as of 11:22 a.m. in London. More than $19 trillion has been wiped off the value of global stock markets since Oct. 31.
More May Be Needed
Failure to calm markets will see central banks inject even more cash, said Robert Barrie, an economist at Credit Suisse Group in London. Other options central banks could take include accepting greater collateral denominated in foreign currencies and increasing lending to banks abroad.
``The lack of dollars has been making the financial crisis worse around the world, which is why we now have this coordinated response,'' Barrie said.
Since the credit squeeze began in August 2007, central banks have sought to keep apart the need to soothe markets and to combat inflation. They argue that interest rates are a blunt tool for helping markets and that price pressures prevent them from cutting rates. While the Fed slashed its key lending rate to 2 percent, the central bank has left it there since April. The Bank of Japan kept its key rate at 0.5 percent this week and the European Central Bank increased its benchmark to a seven-year high in July.
If the spasms in the markets continue and threaten to derail growth central bankers may shift, although for now they will want to wait, said Kevin Gaynor, head of economics at Royal Bank of Scotland Group Plc in London.
``Partly this is to keep powder dry and partly because cutting interest rates won't make much difference,'' he said.
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