Current Futures: Dow +201.00, S&P +22.20, NASDAQ +32.00
European Trade: European equity markets and U.S. futures posted strong gains overnight, as rumors abound that the Treasury will announce the toxic asset plan today.
The Treasury plans set up public-private investments funds, which will be run by private managers. However, the two sides will contribute equally to the size of the investment funds, and will also share in any losses stemming from the toxic assets. The public-private investments funds will buy distressed assets, at huge discounts from their fundamental value.
Because the market, for most of these assets, is virtually closed, the toxic assets will be sold at auctions so both the banks holding them and the bidders will get an appropriate price. To increase the private incentive, which may appear very reluctant at the beginning, the Treasury plans to loan, through a new entity, up to 85% of the asset’s value.
Both the Treasury and the Fed plan to expand the Term Asset-Backed Securities Loan Facility to include older assets. Currently, only newly issued consumer securities are allowed to access the TALF program.
Analysts do not seem overly impressed by the new programs, since Mr. Paulson also presented many of these measures. Many have said that risk is not being equally distributed, since taxpayers provide most of the funds. Another big issue will be persuading the banking sector to let the toxic assets go, and force them to mark a (huge) loss. Japan never succeeded in doing so…
At the same time as the U.S. administration is searching for new ways to boost the economy, Mr. Trichet said that Europe does not need any additional spending to fight the credit crunch. By saying this, the Chairman of the ECB is backing the European leaders, which, until now, have refused calls for a new stimulus package. Moreover, Mr. Trichet declared that the different response of the two areas, U.S. and European Union, are comparable with the size of the downturn. However, the IMF estimates the Euro-area economy will contract 3.2% in 2009, more than the U.S. economy.
Tonight, the Nikkei rose 269.57 points (3.39%) to 8,215.53. The Australian S&P/Asx added 84.50 points (2.44%) to 3,550.30. The U.K. Ftse gained 53.55 points (1.39%) to 3,896.40, while the German Dax rose 71.62 points (1.76%) to 4,140.36
Crude oil advanced on positive equity markets. Crude oil for April delivery gained $0.50 to $52.50
Gold traded side-ways in the overnight session. Bullion for immediate delivery fell $1.50 to $954.60.