Current Futures: Dow +54.00, S&P +6.50, NASDAQ +12.75
European Trade: European markets opened higher, while U.S. futures advanced overnight. Asian markets started the positive momentum, and closed the trading session higher. The main gains were seen in the financial sector and in the car-manufacturing industry overnight.
The equity markets open this morning with many news items to digest. The financials are again in the spotlight, but this time they find themselves at the other end of the line.
Until recently, no one would have been surprised if another bank requested help from the U.S. Treasury, but these days a growing number of banks are planning to pay back their TARP debt. There continues to be a growing lack of sympathy in Washington toward bankers. Yesterday, Bank of America said that it would also like to re-pay its $45 billion loan as soon as possible. More and more banks announced that they are planning similar measures, including Goldman Sachs and a number of regional banks.
However, trying to repay back the TARP loans contradict the initial purpose of this special program, to assure the stability of the financial system through increasing the banks’ capital reserves. These moves are even stranger, especially now, when Bank of America had its debt-rating cut yesterday, while its ability to sustain any further losses, measured by the tangible common equity ratio, is already minimal.
Citigroup announced its plan to set up a special fund to buy toxic assets using the new Treasury program. The bank hopes to raise up to $250 million, to buy undervalued assets. With help from the Treasury, the investment fund can leverage its buying power up to $3.5 billion, since analysts have showed that the potential buyers will only cover 7%. This is an important step forward for Citigroup, because the bank will be able to clean its balance sheets and still “own” the assets. Looks like a win-win situation…
In Europe, the Netherlands announced an $8 billion stimulus package for the economy, meant to help the country weather the credit crisis. However, compared with the size of the economy, the stimulus bill is very small, approximately 1%. Most of these funds will be invested in jobs, energy saving and fiscal measures. At the same time, the Prime Minister of the U.K., Gordon Brown, gave up the idea of a second stimulus plan, following the BoE and the Treasury’s comments.
Tonight, the Nikkei rose 156.34 points (1.84%) to 8,636.33. The Australian S&P/Asx added 37.30 points (1.03%) to 3,646.60. The U.K. Ftse rose 17.53 points (0.45%) to 3,917.78, while the German Dax gained 25.05 points (0.59%) to 4,248.34
Crude oil continues to trade near the high of the last few days. Crude oil for April delivery rose $0.90 to $53.60
Gold traded on very light volume overnight. Bullion for immediate delivery rose $1.00 to $939.00.