25 September 2008

Financial markets shaky on rescue plan

The following is excerpted from the 25 September 2008 edition of “Toronto Star”.

Financial markets are shaky as traders digest the assurance that George W. Bush is on the job of rescuing the financial industry from collapse.

In his 13-minute televised speech Wednesday night, the American president warned of "a long and painful recession" if Congress does not quickly pass his administration's US$700-billion plan for taxpayers to buy up bad debts related to the U.S. housing market debacle.

This morning, flagship American conglomerate General Electric cut its profit forecast for the current quarter and full year. GE blames unprecedented weakness and volatility in financial services markets…

Canadian investors are awaiting a speech (at 1:15 p.m. ET) in Montreal by Bank of Canada governor Mark Carney with the title “Reflections on Recent Economic Developments.”

In Washington, Bush is to confer today with presidential candidates John McCain and Barack Obama. Republican McCain said he is suspending his campaign to deal with the emergency, in which Bush says "our entire economy is in danger."

But many from both parties in Congress are skeptical about the president's argument that rescuing big financial companies from their sloppy risk management will preserve the overall economy and help consumers and businesses.

Stock index futures pointed to a narrowly mixed open on Wall Street, after the Dow Jones industrial average slipped 29 points Wednesday while Toronto's S&P/TSX composite index was off 19 points.

Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke urged members of Congress on Tuesday and Wednesday to quickly approve the plan to sop up risky mortgage-related assets.

The administration yielded to a demand for limits on the pay of executives whose companies benefit from the bailout. But major elements remain up in the air.

In credit markets, demand remains intense for the three-month U.S. Treasury bill, regarded as the safest short-term investment. Its yield was unchanged from Wednesday at 0.49 per cent.

Light sweet crude oil for November delivery was down $2.04 at $103.69 on the New York Mercantile Exchange while gold declined $4.40 to US$890.60 an ounce as the American dollar strengthened modestly against the euro and the yen.

The Canadian dollar opened at 96.60 cents US, up 0.14 cent…

Car-company stocks fell as new data showed most major Japanese vehicle makers cut production last month, adding to growing concerns about a global economic slowdown. Toyota Motor shares declined 2.5 per cent after saying its worldwide production was down 15.5 per cent from a year earlier. Nissan shares skidded five per cent.

In Hong Kong, the Hang Seng Index surrendered early gains and slipped 0.2 per cent to 18,934.43.

The U.S. financial rescue "is key to the global market," said Linus Yip, a strategist at First Shanghai Securities.

"If this doesn't pass, the credit crunch could hit harder, so everyone's keeping an eye on it. I think we're going to trade sideways until we see a plan pass."…