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While you were sleeping: US dollar's slide, AIG's plunge

Monday 23rd March 2009

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The US dollar rounded out its worst week since the 1985 Plaza Accord, when major economies agreed to the depreciation of the greenback, amid concern the Federal Reserve's plan to buy US$300 billion of Treasuries will undermine its currency.

The dollar slid 4.8% to $1.3578 per euro last week and weakened 2.1% to 95.90 yen. The euro rose almost 3% to 130.24 yen. The ICE trade-weighted dollar index tumbled 4.1% to 83.71, the lowest since officials from major economies met at New York's Plaza Hotel in September 2005 to agree on a coordinated devaluation of the greenback versus the yen and the deutsche mark.

The Fed's plan to purchase Treasuries and mortgage-backed securities will boost its balance sheet by US$1.15 trillion in a strategy known as quantitative easing.

Shares on Wall Street weakened on Friday in New York. American International Group slumped 22% to US$1.26, leading the Standard & Poor's 500 Index down about 2% to 768.54, after Connecticut Attorney-General Richard Blumenthal subpoenaed AIG CEO Edward Liddy and other company executives to a hearing on bonuses.

Chief executives of Citigroup, Bank of America and JPMorgan Chase have criticized the Congress's plans to impose a 90% tax on bonuses of firms that received at least US$5 billion of aid.

Financials dropped after investors sought only a tiny portion of the US$200 billion of aid the Federal Reserve had put up to revive lending to consumers and small businesses.

Bank of America dropped 11% to US$6.19 and JPMorgan Chase fell 7.2% to US$23.15, leading the Dow Jones Industrial Average down 1.7% to 7278.38. American Express declined 6.2% to US$12.26 amid speculation the credit card company is headed for more losses and lower dividends.

Amex may report losses this year and in 2010, according to analysts at Friedman, Billings, Ramsey. A rising jobless rate will probably lead to increased defaults on credit card payments, they said.

General Electric declined 5.8% to US$9.54 after analysts lowered profit forecasts.

The Nasdaq Composite fell 1.8% to 1457.27. Xerox shares tumbled 19% to US$4.34 after the digital printer and copier manufacturer lowered its first-quarter earnings forecast as much as 85%, citing a slowdown in demand for office supplies. The company's credit rating outlook was lowered to 'negative' by Standard and Poor's.

The Securities and Exchange Commission is looking into insider trading allegations as part of investigations into subprime lenders, in cases where there was unusual trading before announcements of bad news, Reuters reported, citing
SEC Commissioner Elisse Walter.

The SEC is looking into whether subprime lenders properly accounted for loan loss reserves, impairment of asset values or overvalued assets.

Walter told a congressional hearing that the SEC has "dozens" of active investigations involving individuals associated with hedge funds, according to Reuters.

Meantime, the Obama administration this week is set to announce regulatory changes this week aimed at averting a repeat of the current financial crisis.

Proposals will identify risks remaining in financial regulation, Bloomberg reported, citing an administration official. Officials want to give the Fed greater power to manage risk in the financial system.

US Treasury Secretary Timothy Geithner plans to expand the Fed's US$1 trillion Term Asset-Backed Securities Loan Facility, or TALF, to buy frozen assets, Bloomberg reported, citing people familiar with proposals set to be announced this week.

Crude oil for April delivery fell 1.1% to US$51.06 a barrel on the New York Mercantile Exchange on Friday, as the contract expired, paring oil's advance last week to 10%.

Gold for April delivery fell US$2.60 to US$956.20 an ounce on the New York Mercantile Exchange as the US dollar climbed from its lows.

Copper for three-month delivery fell 1% to US$3,960 a metric ton on the London Metal Exchange.

China said its US$585 billion stimulus package would stoke economic growth by up to 1.9 percentage points, helping the nation reach its target of 8% annual growth.

Zhang Yutai, an official from the State Council, said China is able "to step out of the crisis and keep stable growth for the mid and long term." His comments were broadcast from the China Development Forum in Beijing over the weekend.

European Union leaders agreed to extend 75 billion euros in new loans to the International Monetary Fund to bolster its resources to combat global recession. The EU leaders, meeting in Brussels, urged G-20 nations to approve similar increases in IMF funding when they meet in London next month.

European Central Bank council member Axel Weber predicted the ECB would cut interest rates further to try to halt the region's economic slump.

"Rates are at 1.5% in the euro area and heading down," Weber was reported as saying at a German Marshall Fund conference "We have room to maneuver."

The Dow Jones Stoxx 600 Index climbed 0.4% to 172.58 on Friday. Irish Life & Permanent jumped 44%, leading gains in Irish financials. Bank of Ireland rose 23% while the UK's Prudential gained 17%.

Germany's DAX 30 rose 0.6% to 4068.74 as Bayer AG jumped 11% after a key US panel gave the green light to its Xarelto blood-thinning drug, moving it a step closer to approval in the US market. France's CAC 40 climbed 0.5% to 2791.14 and the UK's FTSE 100 rose 0.7% to 3842.85.



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