The All Ords rose 72 points on Friday to 52285.5. Our market fell 1.5% last week. Markets here and in Asia will be hoping that media reports of Bear Stearns being bought by rescuing rival, JPMorgan Chase, are not wide of the mark.
The muted reaction from local traders to the 194 point (1.6%) fall in the Dow and the 2% falls in the Standard & Poor's 500 and NASDAQ, was an interesting counterpoint to the rise in tension on Wall Street.
After the belief of Thursday that the financial crisis might be heading towards an end later this year, the problems at Bear Stearns ended that Pollyannaish thinking and started investors wondering about who would be next.
It meant a third day of falls in the US and either our rebound on Friday, which went on an on as the day went on, will be followed up by another relatively solid day, or there will be a bigger drop than that indicated by the futures market. The failure of Bear Stearns and its rescue will worry Asian markets more than us here: although Macquarie Bank and Babcock and Brown will bear watching seeing they operate in the same sectors as Bear Stearns does in the US. Bear Stearns' announcement overshadowed economic reports showing inflation remained stable while consumer confidence was also a little better than forecasts.
The Dow Jones was down 194.65 points, or 1.60% at 11,951.09, while the S & P 500 index was down 27.34 points, or 2.08%, at 1,288.14. The NASDAQ composite index was down 51.12 points, or 2.26%, at 2,212.49. For the week, the Dow rose 0.48%, thanks to Tuesday's huge rally after the Fed announced its second liquidity boosting move in five days. But the S%P 500 fell 0.440% and NASDAQ was unchanged. Since the end of February, the Dow has fallen 2.57% and the S&P 500 has dropped 3.19% and NASDAQ is off 2.60%. For the year so far, the Dow has lost 9.90%, the S&P 500 12.27% and NASDAQ has shed 16.58%. The S&P 500 is more than 17% under its October 9 record and is now within sight of a so-called bear market which kicks in when a market falls 20% or more from its peak.
"After big falls over the last few weeks, with a lot of short selling in place and with lots a bad news already floating around and likely discounted into share prices, shares are due for a decent bounce, according to the AMP's Dr Shane Oliver.
"Extreme levels of investor bearishness are also a short term positive for shares from a contrarian perspective. (Shares normally do best when everyone is bearish, not when everyone is bullish!).
" However, notwithstanding the potential for a bounce, the ride for share markets is likely to remain rough over the next six months, with shares likely to see more downside.
"The news on the US economy will likely get worse before it gets better, credit market difficulties are likely to persist as long as US house prices keep falling and as corporate defaults rise and we are yet to see the sort of investor capitulation that marks the end of bear markets.
"Australian shares also have to face the added burden from the fall-out from high local interest rates and the strong $A.
"It's quite likely the local market will see 5000 on the ASX200 before it all turns back up again on a sustainable basis. As such, it remains a time for caution."
European sharemarkets fell on Friday, catching the tail of the reaction to the Bear Stearns news. It was the third straight weekly fall in a row for European markets.
The Dow Jones Stoxx 660 Index dropped 1% on Friday to take its week fall to 1.2%. It has now dropped 17% so far this year, a much more substantial decline than in the US because of concern about inflation, corporate earnings and the spreading credit crunch.
National indices in 15 of the 18 markets in western Europe: Germany's DAX and France's CAC dropped 0.8%, while London's FTSE 100 slipped 1.1% after climbing as much as 1.6%. The index was down 1.2% over the week.
BHP Billiton rose 3.7% to 1,590 pence and Rio Tinto Group was up 2.2% to 5,527 pence in London as the world's biggest and third-largest mining companies followed metals prices higher. Gold, copper and platinum were among metals that rose.
Asian markets fell for the second week. The MSCI Asia Pacific Index (a regional benchmark) lost 0.9% On Friday to be off 2.7% for the week and 14% for the year so far. Japan's Nikkei fell 1.5%, while our ASX 200 benchmark was up 1.4%. But China's CSI 300 Index completed its worst week on record, dropping 1% on Friday and 10% over the five trading days because of growing fears the government will raise interest rates to cool inflation boosted by the severe winter storms in January and February. Hong Kong's Hang Seng index lost 0.3% on Friday to 22,237.11, its lowest close since January 22. It fell 1.2% last week.
Gold and metals helped send our market higher and their solid performance Friday night will help offset fears from the Bear Stearns bailout. Gold futures for April delivery jumped to $US1009 an ounce on Comex on Friday night. It closed at $US999.50 an ounce.
So gold stocks rose: Lihir was up 11c at $4.18, Newmont 22c to $5.64, and Newcrest 81c to $37.71.
BHP Billiton surged $1.54 to $37.92. Rio Tinto did likewise, jumping $6.30 to $130.80 as it said it was in talks with the South African government regarding the future of its Coega aluminium smelter amid continuing power supply problems.
Woodside Petroleum ended 43c higher at $53.58 while Santos was 17c up at the end at $13.19.
Oil Search rose 10c at $4.46 as the company and the participants in the Papua New Guinea liquefied natural gas project signed a joint operating agreement. The cost of the project though remains a major concern and could reach a huge $17 billion according to some rough estimates. The banks and other financial stocks will take the brunt of any nervousness today after the events of Friday in the US.
The National Australia Bank rose 39c to $27.66 here on Friday, Westpac jumped 36c to $23.00, the Commonwealth rose 27c to $39.77, and the ANZ rose 13c to $21.60. Equity Trustees jumped $2.35 to $25.00 after it announced it was in merger talks with fellow wealth manager, Trust Company. Woolworths though fell 42c to $26.78 and Wesfarmers, which owns Coles, dropped 59c to $36.05. The Warehouse Group, one of New Zealand's largest retailers, added five cents to $5.20 despite saying trading conditions were likely to remain difficult for the rest of 2008. Woolies and a NZ rival, Foodstuffs, are trying to buy The Warehouse. They are awaiting legal action in New Zealand.
Western Australian iron ore miner Midwest Corporation jumped $1.28, or 30.84%, to $5.43 as Sinosteel Corporation launched a $1.2 billion hostile takeover offer.
