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Current Futures: Dow +2.00, S&P -0.20, NASDAQ +1.25
Asian markets advanced, but U.S. futures traded mixed after a number of insurers received Treasury TARP funds.
Six insurers received approval to access the Treasury’s bailout funds today, some of whom include Prudential Financial Inc., Hartford Financial Services and Allstate Corp. The exact size of the bailout packages is still unknown, but TheLFB-Forex.com Trade Team estimates that it will reach a few billion dollars per company. Since the beginning of the downturn, the situation in the credit default swap and other derivate insurance markets had worsened, forcing companies that sold default protections to take massive losses. The S&P Life & Health Insurance Index jumped 5% after the news was made public today.
A credit default swap is a contract between two counterparties, in which the buyer seeks protection against a possible default. Insurance companies capitalized proactively on sellers during the pre-credit crisis period, something that is now proving to be rather expensive. The same default swaps brought AIG to its knees, since a number of companies defaulted on their debt, which forced the insurance company to incur massive losses. TheLFB-Forex.com noted that, any company can buy default protection even though they have nothing to do with the indebted company or with its creditors, leaving the buyer free from any loss due to a default scenario.
Further positive news came tonight from Sony, the biggest maker of consumer electronics in the world. The Japanese company announced a smaller than expected loss, while it said that it would close 10% of its factories. The dollar Libor rate, or the inter-banking rate to borrow dollars, declined the most in eight weeks. At the same time, the spread between the 3 months Libor rate and the similar U.S. Treasury dropped to its lowest level in one year and a half, signaling that banks have access to cheap money.
Overnight, the Japanese Nikkei gained 83.06 points (0.91%) to 9,176.79. The Australian S&P/Asx rose 56.20 points (1.51%) to 3,779.60.
Crude oil for June delivery was recently trading at $58.70 per barrel, higher by $0.10.
Gold for June delivery was recently trading lower by $2.50 to $923.60.
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