London was up less than 2%: the surge in Germany was due to a sharp rise in the shares of Volkswagen as Porsche surprised the market by revealing it had assembled a controlling 7%% by market buying and playing the derivatives markets.
Hedge funds lost heavily as they had been shorting VW shares and got trapped as the value of the shares soared to the point where the car maker was the most highly valued company in the world a
The overnight futures market was signalling a 6% rise in the ASX 200, or more than 240 points..
That was after one of the most explosive last couple of hours trading ever seen on Wall Street. Therre was a gain of 500-600 points in the last hour.
The Dow posted its second-best point gain ever as the cheapest valuations in 23 years lured investors and increased commercial paper sales signaled credit markets are thawing.
In addition, there's now a belief the Fed will announce a 0.50% rate cut after its current meeting ends tomorrow morning, our time.
The yen fell the most against the dollar since 1974 and posted its biggest decline versus the euro ever as global stocks rallied and speculation increased that the Bank of Japan will cut interest rates.
There were reports in Tokyo overnight of a plans to cut the key rate 0.25%, which would halve the Bank of Japan's key rate. The central bank meets Friday in Tokyo.
That saw the yen crash, suffering its biggest loss against the greenback since 1974. It dropped 5% against the US currency in New York. It dropped 11% to 62.70 yen against the Aussie and 10.% to 55.19 against the New Zealand dollar.
The Aussie surged 7% to 64.28 US cents after touching 60.09 cents yesterday, the weakest level since April 2003.
The Reserve Bank of Australia bought dollars for a third day yesterday to stem losses and is now sitting on some nice profits as some of the first day's intervention Friday night was around 55 Yen..
Sales of longer-term commercial paper soared 10-fold after the fed revealed that two days of backing the slumping US corporate commercial paper market, had revitalised it.
The Fed began buying the corporate paper and on Monday alone the market saw companies yesterday sold 1,511 issues totaling a record $US67.1 billion of the debt due in more than 80 days.
That compared with a daily average of 340 issues valued at $US6.7 billion last week. Dealers said the Fed accounted for $US60 billion of the total.
The Dow's only larger point gain in a day was on October 13, when the 30-stock gauge jumped 936 points on the government's plan to buy stakes in banks. We know it plunged several times after that, so this could be a one day wonder.
Now for the Fed's rate cut, but as that is priced in, will markets fall again?
Business confidence continues to fall, according to the latest survey from the National Australia Bank of monthly business conditions.
While that's gloomy news, there were a couple of other worrying portents from the NAB survey and from other announcements yesterday.
Residential property prices are looking stretched and the NAB and Merrill Lynch see falls of 5% to 10% coming over the next couple of years, and not much joy after that.
That will be bad news for the likes of Boral, Wattyl, Brickworks, the banks, especially Suncorp and the CBA, and for retailers like Harvey Norman.
Retailing is definitely hurting more than it seems from the outside: even the likes of Billabong, a big name locally and internationally for high margin, very successful sportswear, is seeing fewer items sold, although the slumping Australian dollar is helping offset the slowdown.
Mining companies are reviewing operations because of sliding metal prices, and importers like McPhersons Ltd, are doing the same because of the sliding currency, which bounced around 60 USc after a third successive day of Reserve Bank intervention. (It got up to just under 63 US cents overnight).
Furniture retailer, Nick Scali cut its earnings forecast yesterday because of slumping demand.
According to the NAB, the slump in activity next year will see a surge in unemployment and a blow-out in the federal budget by a massive $30 billion "over the next couple of years", and force residential house prices to fall by 5% to 10% over the next two years, according to the forecast from the bank, and from analysts at Merrill Lynch (See story below).
And while interest rates will fall further and inflation will follow next year, the slide in house prices will see them stagnating for three to five years: up to 2013 or longer, according to one of those forecasts.
The NAB reckons the Australian economy has slowed to 2001 levels (when we almost tipped into recession after the GST boost and the US slump). It sees the Reserve Bank cutting interest rates to 4.5% next year, but has forecast a $10 billion budget deficit for the 2010 financial year.
"While the Government's Mid-Year Economic and Financial Outlook is due in a couple of weeks, fiscal expansion together with the negative impacts of slower economic growth may well see the Federal Budget turn to small deficit of say around $10bn during the next couple of years.''
It was around $21.7 billion in the year to June 2008, so the turnaround would be of the order of $30 billion.
The NAB also forecast the unemployment rate to rise to 6% during 2009/10) compared with the current rate 4.3%) and "core inflation will return to the RBA's 2%-3% range' despite another "near term surprise", and then fall further in 2010.
The NAB's forecasts, contained in its latest survey of monthly business conditions, comes as analysts at Merrill Lynch in Sydney have forecast a 10% fall in house prices over the next two years, followed by three to five years of flat or no growth.
The NAB supported the Merrill Lynch contention that residential property prices will fall, but not by quiet as much as 10%.
"Our macro forecasts suggest that as the unemployment rate rises sharply through late 2009, the residential property market may deteriorate further into 2010 – notwithstanding improved affordability associated with significantly lower interest rates. Our forecasts are broadly based on unchanged housing prices in 2009 with a moderate further fall of around 5 per cent into 2010."
And leading retailer, Harvey Norman, revealed for a third week in a row that it is experiencing 'negative' same store sales growth: in the seven days to Sunday October 26, same store sales across Harvey Norman's Australian stores fell 3.6%, after falls of 5.7% and 4.8% in the preceding three weeks.
Harvey Norman's experience was supported by an update from a smaller Melbourne-based competitor, Clive Peeters, which told the market last Friday that same store sales were off 10% to 14% in the three months of the September quarter and things are not improving. The company will provide a fuller update at its AGM later in the week.
And Nick Scali's annual meeting in Sydney heard yesterday that the company first half sales and profit for 2009 will be affected by the slowing economy and weakening Australian dollar.
CEO, Anthony Scali said while there been encouraging signs over the past three months in "sales order intake", sales for the first half were expected to be about $2 million below the corresponding period last year.
"The recent weakening of the Australian dollar in a very short period will cause a substantial one-off decline in our gross profit for the first half of 2008/09 and is expected to reduce earnings by $0.9 million to $1.4 million," Mr Scali told the AGM.
"Our net profit after tax for the first half of the current financial year is now likely to be between $2.3 million to $2.8 million, against the $4.62 million earned in the December half of 2007."
Harvey Norman has already revealed an 18% drop in earnings for the first two months of this financial year because of a slump in Ireland. But it hasn't upgraded that forecast because of the slump over the past month to six weeks in Australia.
The NAB said it expects Australian economic growth to slow to 1.25% next year as the " full effects of falls in share and key commodity prices fall and slow global growth weigh on prospects, notwithstanding expectations of stimulatory policy responses from both Governments and RBA."
It said its local forecasts remain "unchanged on the bearish side of "consensus" view. Downside risks remain – at home & abroad – with much dependent on success of global financial rescue underway".
The NAB said it expects the RBA cash rate cut from 6% to 4.5% by mid 2009 as well as aggressive cuts by central banks elsewhere;
It said the "Federal Budget is likely to go from surplus to deficit of around $10 billion", which would be a $31 billion turnaround!
"Global GDP growth (on a broader definition) forecast lowered to only 2.5% in 2009 – including recessions in US, UK, Japan and Europe, together with slower growth in emerging economies;
"Business conditions to weaken significantly to mid 2001 levels – consistent with subdued current activity & annual growth in non-farm GDP slowing to 2% in Q3 2008; Business confidence steadies for now – well above levels of 1990 recession."
The NAB said its index of business conditions dropped 11 points to -4 index points in the three months to September, one of the biggest quarterly falls in the past two decades,
"The proportion of firms reporting the availability of labour as a constraint on current output has fallen from a recent record of 72% in early 2008 to 66% in the September quarter," said NAB group chief economist Alan Oster in a statement.
"While the proportion of employers nominating labour shortages as the main constraint on their 12 month profit outlook has fallen from a recent record of 33% to 13% in the latest survey."
Slumping consumer demand and slower lending activity pushed down all of the components of the gauge to levels seen in 2001, when business conditions stood at -11 index points.
Trading conditions contracted 11 points to -4 points, profits have also lost 10 index points to rank -8point, and employment - which was flat in the June quarter - edged down 3 points to -3 points.
Business confidence, a forward looking indicator, increased 1 index point to -7 index points for the December quarter, below their mid-2000 levels.
"Businesses expect conditions to slow significantly further in the December quarter of 2008," Mr Oster said.
The bank said major economies would slow further "due to lags associated with negative wealth effects from lower equity and house prices".
"Recessions are forecast for the US, Europe, Japan and UK, while growth moderates in developing economies," the bank said in the statement.s
