Current Futures: Dow +95.00, S&P +11.20, NASDAQ +15.00
European Trade: European markets and U.S. futures retreated from the gains posted yesterday after the Chinese Premier said that he does not plan to extend the current $585 stimulus plan as was previously reported. Commodity stocks led the declines tonight, after rallying in the last day of trading.
A Reuters report shows that the U.S. House Financial Services subcommittee plans to have a meeting to discuss the mark-to-market accounting rule, which forces banks to value assets on their books at the market price. It is reported that the hearings will take place on March the 12.
This is most likely a consequence of the strong lobbying the financial sector has engaged in before the committee. Until now, banks have been forced to write down huge amounts because of this rule, depleting their capital base. However, this simple rule is in-line with one of the economy’s most basic laws: an asset is worth as much as someone is willing to pay for it. In this case, the toxic assets are worth nothing because no one is willing to buy them.
U.S. officials, mainly the Treasury authorities, have said this is a liquidity issue, because the toxic assets have lost so much in their value only because that market lacks liquidity now, but as things return to normal these assets will be restored to their original value. However, most economists say these assets are nothing more than junk, because of the high rate of default associated with them. If the Financial Services committee votes to ban, or just to relax the mark-to-market laws, banks might see a real rally.
Tonight, the Nikkei added 142.53 points (1.95%) to 7,433.49. The Australian S&P gained 22.10 points (0.70%) to 3,188.50. The German Dax fell 70.79 points (1.82%) to 3,820.15, while the U.K. Ftse shed 48.12 points (1.32%) to 3,597.75
Crude oil rose overnight adding to gains seen during Wednesday’s trade. Crude oil for April delivery added $0.29 to $45.60
Gold strengthened in the last session, dragged higher by the commodity markets. Bullion for immediate delivery gained $7.80 to $914.50.