That takeover was announced yesterday and will provide a fillip for markets, especially financial stocks. Friday's small, late bounce may have been a small sigh of relief as news of the top level meetings spread through Wall Street, but until the dust settled, it might be the last good news for a day or so. Fannie Mae and Freddie Mac shares tanked in after hours trading: Fannie Mae and Freddie Mac declined 32% and 27% respectively as investors punted that shareholders would be wiped out.
The fate of the holders of billions of preferred shares is uncertain, but big losses seem likely. That's a vital point as a string of small to medium US regional banks own holdings of them and huge losses, on top of subprime, commercial and car loan losses could push more banks over the edge. It seems the Fed and regulators will make sure there's no unwanted failures as a result.
But the resolution of Fannie and Freddie's futures, while destabilising for some, might help other larger US financial groups, especially Lehman which has been trying for weeks to raise money ahead of its quarterly results next week. But the failure late Friday of the 11th US bank this year will also unsettle markets, making for a tough day in US markets Monday, even if Freddie and Fannie's futures are clearer.
Friday's finish in the black came after stocks on Wall Street spent most of the day in the red after the rotten jobs figures for August and depressing news on home loan foreclosures. Analysts said signs of further weakness, particularly after Friday's jobs figures showed unemployment hit a five-year high of 6.1% in August while 84,000 jobs were lost, would add to the investor fears. Signs of slower growth in the euro zone and Japan make that an even bigger concern.
European shares shed some 5.8% over the last week on growth worries, their worst weekly loss in five and a half years. Asian stocks fell, driving the region's main index to its biggest fall in 13 months, on concerns about the global slowdown, and worries about instability in Thailand, Malaysia and South Korea. Emerging markets fell for a sixth day (with Russia and China weak), capping their largest weekly loss in six years, as commodities dropped on global growth concerns and Morgan Stanley said profit estimates were overly optimistic for this year.
The MSCI Asia Pacific Index dropped 6.7% last week, the biggest slump since the trading week ended August 17 last Year. It's now down 26% this year. The MSCI Emerging Markets Index's 8.6% fall last week was the biggest since mid-2002. The index is off 30% this year to the lowest since March 2007.
The three main US indexes shed more than 2.8% each last week, with the S&P 500 coming close to a 2008 low set in mid-July. Analysts say it is significant how the falling oil price has failed to stop the slide and to set the market alight:
Markets have struggled even as the price of oil has continued a steady slide, down about 27% from its July record above $US147 a barrel. While a positive for consumers, lower oil prices are also seen as a symptom of slowing global demand.
The rising US dollar is clipping the benefits of the falling oil price to foreign consumers and economies, which will further depress demand and boost inflation if sustained. On Friday the S&P 500 rose 0.4% to 1,242.31. The Dow rose 32.73, or 0.3% to 11,220.96 and the Nasdaq slipped 3.16 to 2,255.88. Trading volumes were medium last week, but should get back to normal this week with traders back their desks after the break.
The S&P 500 pared its weekly loss to 3.2%; the Dow was off 2.8% and Nasdaq was off as well. The main global measure, the MSCI World Index fell 5.8% last week, its steepest drop since the first week of trading after the September 2001 terrorist attacks. The gain in banks came even as foreclosures rose above 1% in the second-quarter for the first time since the Mortgage Bankers Association began its loan survey 29 years ago.
Asian shares weakened in most markets.
Commodity stocks bore the brunt: for example BHP Billiton and China oil giant, Cnooc Ltd. plunged more than 10% after metal and oil prices tumbled. The MSCI Asia Pacific Index's 26 per cent fall so far this year has accelerated in recent weeks as concerns about stability in some countries in the region and fears about the impact of a global slowdown have hit markets and major stocks. Tokyo's Nikkei Index fell 6.6% last week on the instability that saw Prime Minister Fukuda resign and a battle emerge for his job.
South Korea's Kopsi Index shed dropped 4.7% on fears of economic problems and a weak currency, while Hong Kong's Hang Seng Index plunged 6.3% to close below 20,000 for the first time since April 2007. Thailand's SET Index tumbled 5.7% after Prime Minister Samak Sundaravej declared a state of emergency that remains unresolved.
And the Australian market shed 5.1% as nasty falls Thursday and Friday battered the bourse. Our market should open higher today, judging by the futures market which had the ASX200 36 points firmer. BHP's 11% fall to $37 and Rio Tinto's 14% retreat to $110.80 dominated Australian markets.
European markets lost ground, slumping to a seven week low.
The US unemployment news was a later trigger for the weakness, but the news that the European Central bank and the Bank of England had left rates steady, despite more fears about falling economic growth was a also a factor. Banks fell across the region, while mobile phone giant, Nokia dropped 10% after saying it was losing market share globally because other companies were cutting prices to maintain sales. The Dow Jones Sox 600 Index lost 2.1% to 272.24, its lowest close since July 16. The index slumped 5.8% last week, the biggest fall since early 2003.
It's now off 25% so far this year. Shares fell in all 18 western European markets Friday. France's CAC 40 lost 2.5%, and Germany's DAX 2.4%. The U.K.'s FTSE 100 tumbled 2.3% and had a miserable week all told, thanks to the fall in commodities. Like Australia, the London market is dominated by commodity companies: BHP, Rio, BP, Shell, Lonmin, Anglo American, BG Group and more. That exposure has made for a miserable time since mid-July when commodities turned lower.
On top of this the UK economy is tanking, so its no wonder it was the Footsie's worst weekly fall in six years, worse than at any time so far in the credit crunch. The Footsie shed 7% last week, the biggest drop since the middle of 2002.
