Economy Live

Bank of America has invested $2bn in Countrywide Financial Corp, to shore up the finances at the largest U.S. mortgage lender, which has hard hit by the subprime mortgage crises.

Under the terms of the deal, bank will buy 7.25% of non-voting preferred stock, which can be converted into Countrywide common stock at $18 per share. Bank’s decisions came six days after Countrywide stunned investors by tapping an entire $11.5bn credit line because it was having difficulty selling short-term debt, which raised apprehension over its future.

In January, before the mortgage crisis surfaced, Bank of America was the subject of speculation it might enter a joint venture with Countrywide, but later all speculations didn’t materialized. Bank’s move is definitely in favor of investors and took us near to the prior speculation, but in the middle of market volatility the impulsion behind the $2 billion investment and the bank’s longer-term goals were not immediately clear as market does not allows us to speculate the any type of joint venture with any mortgage lender firm.

After the bank’s intervention Countrywide’s market value soared up by 19% to $12.6 billion. In an hour trading largest US mortgage lender’s share mounts $25.91, whereas Bank of America’s shares rose 95 cents to $52.60.

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Via: USA-Today

What can be worse for an economy if its inflation increases at the pace of 2000% per month? I am not leaving you in a quandary, but Mugabe-led Zimbabwean economy is actually affected by the inflation, which has risen to 7,634.8%, the highest in the world till now.

An official report, issued by Zimbabwe Central Statistical Office authenticates the precariousness in the economy as compatriots forced to helplessly spend thousands on penny worth goods. Report showed that in July, inflation increased at 7,634.8%, and 7,251.1% in June, whereas in May inflation was hurting economy at 4,530%.

Economists are raising questions on the report and believe the real figure is much higher. Earlier analysts had predicted that the inflation would be surging to 6000% by the end of the year, but ineffective policies, black marketing and laxity in the law and regulations has placed the country’s economy on back foot.

The IMF is suspicious about the economy’s recovery from the inflation worries and predicted that inflation could reach 100,000% by the end of the year.

Government had imposed price controls policy to control the incessantly galloping inflation rates, but its ineffectiveness makes the situation suspect over efforts to curtail the inflation.

Country’s present problem is not economy mishmash generated, but it’s generated by their own faulty policies. To empower the indigenous people, government forcefully snatched land from the white people and distributed among the land less native. Government step resulted in huge sarcasm from the western countries and they imposed sanctions. After the ban, the country became aloof from the rest of the world and with the lack of necessary things the industrial sector hit hard, this directly hit the country’s employment and growth.

Via: Aljazeera

To control money supply and curb rising prices, the People’s Bank of China has raised interest rate on bank deposits by 27 basis points to 3.6%, and the lending rates by 18 basis points, to 7.02% from 6.84%, fourth time this year.

Stocks steadily strengthened after the Federal Reserve’s recent interest rate cut, but failed to meet with the anticipated promises. Market is continuously being hurt by the debt market - to alleviate the ongoing credit crunch and to calm the market precariousness, another rate cut is hoping round the corner.

The Federal Reserve, which lowered its rates last week and gave huge relief rally in the stock market, has yet to solve the liquidity squeeze in fixed-income markets. Proof of this came to the fore, when market registered massive buying on Monday and Tuesday trading, but on the contrary government-backed securities went down sharply.

However, today market responds well and starts business from yesterday at 2.3% up. The NZSX-50 benchmark index surged 12.72 points to 3995, on the stability in credit markets. The Nikkei jumped 3%, while Britain’s FTSEurofirst 300 index advanced 0.6% to 1481.90. The Dow Jones gains 42.27 points, and rose to 13,121.35. However the Standard & Poor’s 500 Index could not benefited from the other markets and dips by 0.03% to 1445.55, whereas NASDAQ shots up by 0.14% and closed at 2508.59.

After wobbly session, market response is satisfactory, but to maintain it further, market analysts want another rate cut. Still, US short-dated Treasury security prices gained on the credit concerns, fortify the notion of another cut, wherein benchmark indices in Japan and Europe rebounded on the chance of more action by the Fed.
To shape the further strategy, Senate Banking Committee Chairman Christopher Dodd is discussing all aspect of market with Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson.

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Via: Stuff

Federal regulators filed civil fraud charges against Sentinel Management Group, accused of fraud and misappropriation of clients’ assets, including using customers’ securities to obtain a loan of up to a half-billion dollars.

The Securities and Exchange Commission arraigned Sentinel for misleading clients by providing wrong information about the market value and selling securities without their knowledge in violation of the Investment Advisers Act. In the complaint, the SEC accuses Sentinel for transferring at least $679.5m in securities from client investment accounts to Sentinel’s proprietary “house” account. Sentinel also used securities from client accounts as collateral to obtain a $321m line of credit as well as additional leveraged financing.

SEC alleges that Sentinel’s fraudulent conduct has placed its clients at risk of irreparable loss. Sentinel officials didn’t comment on the SEC action.

Earlier, Sentinel has filed for Chapter 11 bankruptcy protection, as two of its customers, Farr Financial Inc. and Velocity Futures, filled a petition against Sentinel’s decision of selling assets at below market rates and without obtaining the needed approval.

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Via: USA-Today

NASDAQ decided to sell its stake in London Stock Exchange after failing to buy it. US stock exchange has around 31% shares in the London Stock Exchange, which are worth £797m ($1.58bn).

Earlier, NASDAQ sought to buy it and proposed a bid. To make the deal look more respectable, NASDAQ bought shares in LSE for £11 each, but shareholders foiled its all steps and rejected the offer in February. However, by selling LSE’s stakes NASDAQ could make profit of more than $240m.

After failing to buy LSE, the second-biggest U.S. equity exchange is preparing a new bid for OMX of Sweden, which is already proposed by Borse Dubai. After disheartening from the LSE, OMX is a good chance to fulfill its dream to expand in European markets as it has exchanges in Sweden, Denmark, Finland and Iceland and the Baltic nations.

NASDAQ is looking for a buyer for its LSE’s stake and would use about $1 billion of the proceeds to retire debt and the rest to buyback shares. The sale will increase earnings per share by as much as 35 cents next year. NASDAQ stocks rose 2% to $32 in New York, whereas LSE shares gained 2.4% to £13 in London.

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Via: BBC

The Nikkei stock exchange showed signs of recovery after hurt by the US subprime mortgage. It rose 458.80 points, or 3%, to 15,732.48, which is the biggest one-day percentage gain in 13 months.

Market responded well as dollar got strength and traded near ¥114.70 a dollar, notably it fell to year low ¥111.60 on the last closing.

The TOPIX was up 2.92%, or 43.18 points, at 1,523.57. Due to the subprime fiasco, it was down by some 9.4% last week, which was its biggest one-week fall since September 1990. However, with the rejuvenation, market is ready to bounce back and the TOPIX is ready to break above 1,600, but the index may feel stagnation after achieving 16k, due to low growth in the major sectors.

The biggest contributors are Canon Inc, which soar 7.6% to ¥5,810 ($50.81), but on Friday it had lost 8.6%, Toyota Motor Corp’s stakes surged 4.2% to ¥6,450 ($56.43) it also lost 7.2% earlier, while Daikin Industries’ shares increase by 8.9% to ¥4,770 ($41.73).

Financial stocks also did good business as Mizuho Financial Group Inc. gained 5.1% to ¥664,000 (5,809.38) and Mitsubishi UFJ Financial Group added another 2.8% to ¥1.09 (0.01) million.

Apart from the financial and technology sector, Energy stocks also surge as Nippon Oil Corp traded at ¥885 ($7.74), which is 6.9% better to the previous trading.

Moreover, steel sector boosts from the market improvement and Nippon Steel Corp. jumped by 4.3% to ¥745 (6.52), whereas JFE Holdings Inc. improved by 4% to ¥7,060 (61.77).

On the first working day of the week, Japanese stock exchange successfully rebounded from a plunge, after the Federal Reserve’s move to cut its discount rate, which eased fears about credit crunch and successfully encourage buyers to buy across the board. In the market, trade was at normal levels with 2.2 billion shares, compared with a daily average volume of 2.1 billion shares in July, which kindle the hope of end of subprime generated apprehension.

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Via: Reuters

The US subprime mortgage monster has already eaten up many markets. All major central banks have come up to protect their economies. Western economies seem to have somewhat left the darker period behind, but budding Asian economies seem tied in the knot of subprime elf.

Wall Street shows signs of recovery - as market succeeds in wining back investors confidence, hoping that European markets slowly and steadily feel the ease as US markets and rebound after month of ruckus.

While trading, the Wall Street saw dramatic recovery as the Dow Jones clawed back more than 300 points. Shares also strengthen over the rumor of Federal Reserve rate cut.

Despite, gains in the US market, Asian markets are facing stiff falls. To alleviate the currency crunch, the Bank of Japan has pumped funds into the banking system. Japanese Bank has intervened thrice in the money market as recently it injected $10.7bn.

Japanese economy can feel the heat, as investors are worried about a slowdown in the US economy that will hit exports from Asia. In the middle of all rumpuses, there is speculation that the Bank of Japan is raising interest rates next week, which could create mishmash in the market - that could mar the small investors.

It’s not only Nikkei in Tokyo, which is down by 4.2% or 674.3 points at 15,474.15, but all major Asian markets that are feeling heat from the subprime’s flame. Hang Seng is down by 3.3% or 688.8 points at 19983.6, whereas Indian Sensex is down 421.86 points or 2.94% at 13936.35, (it’s notable that Sensex was at business at over 15,500, only a week before).

It was long speculated that the Subprime woes would not affect developing Asian region. But market volatility proved all speculations wrong. Taking lesson from the plunging Asian market and weighted business with west, Australia is taking precautions; the Australian central bank is intervening to support its currency for the first time in six years. New Zealand has already cleared its intention of intervening in the market, while southeast nations are weighing the market precariousness, before taking any step.

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Via: BBC

The Bank of Japan is withdrawing $5bn funds it poured into the money market in the past two working days amid signs that the liquidity crunch may not be as bad as it was initially conceived, with the calm slowly returning to global financial markets.

The Bank of Japan has injected money over the concern of US subprime woes, which has paralyzed many economies, but after experiencing improvement in the market and ample liquidity in Japanese market, central bank retrieved fund from the money market.

Bank is withdrawing funds through sales of treasury notes. While selling, the overnight call rate dropped to around 0.4%, below the BoJ’s target of 0.5%, showing there is ample liquidity in the market. BoJ confirmed the withdrawal of injected funds, due to the rates continued to trade at levels lower than perceived and not relatively making any effect on the money market.

Japan also has less concern about liquidity as a sharp drop in rates that took place an hour ago and the central bank’s precautions action automatically guard Japanese liquidity problem. It is generally believed that Japanese financial institutions have only limited exposure to the subprime market, and the Bank of Japan apparently conducted the liquidity injection for the sake of a concerted action with the US and Europe.

BOJ also has the lowest interest rates of any major country and its monetary policy aimed at stimulating the country with easy credit after years of deflation and economic depression. It’s also rumor that Japan is planning to raise it benchmark rates by 0.50 to 0.75, to curtail its borrowers purchasing rate.

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Via: AFP

Asian banks are taking initial step to avoid the market precariousness as the US subprime woes are continuously affecting major markets.

Being a highly developing region, Asia assumes to be less affected from the existing crises, but Asian nations aren’t taking any chances and are ready to face the problem strategically as well as economically.

After ECB and American bank, Asian banks are pumping money in the market, Bank of Japan has announced that it will inject $5.1bn into the banking system, to fuel the liquidity, whereas others major banks such as central banks in South Korea, the Philippines, Singapore, Indonesia, India, and Malaysia are assessing the market inclination and are ready to take appropriate step at the right time.

Central bankers from Asia to the United States had managed to restore an uneasy calm to financial markets by injecting billions of dollars into money markets that had almost seized up. The Asia-Pacific region is still awash in cash, with gross capital inflows into East Asia totaling $269 billion in 2006, however policy makers are not in a mood to give chance to market volatility.

Asian major players have already taken precautions as south Asia’s growing economy India has restricted lending this year by ordering banks to put more deposits aside on three occasions, while the Bank of Korea on Aug. 9 unexpectedly raised its benchmark interest rate. Although, China’s market mishmash is pinching the populace as the Chinese authority is planning to increase its benchmark rates, notably the fourth time in a year, but has still failed on its forefront to keep money flow under check.

Although, Asia seems safe from the crises, yet western economies are still under scanner, despite pumping extra cash into the financial system as global stock markets fell and high-yielding currencies lost their values.

US Federal Reserve has already injected $35bn so far, but the volatility still prevailed in the market. To curb the crises as early as possible, the US regulators are scrutinizing the books of some top Wall Street brokers and investment banks for subprime mortgage losses.

Due to the subprime woes, World stock markets have shed over 7% since they hit record highs only a month ago. Investors are afraid to invest in the market and they are rushing to buy government bonds, unwind yen-financed carry trades.

All major banks are taking emergency action to underline the risk that a global liquidity crunch was more serious than anticipated, but the desirable results are still far. In currency trading, the dollar also down 0.35%, while euro has shown some sign of gain, but still market volatility is hitting banks and corporates’ profit, as the crisis does not allow to make any corporate takeover deal.

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Via: Yahoo