With the jitters caused by major banks turning turtle (Fortis, HRE etc.), which could not be worse timed for TARP and for banks generally, European financial stocks suffered sharp losses. TARP may have lost the psychological moment of maximum impact because of Congessional and Presidential arm-wrestling. The FTSE 100 was not helped by Asian markets falling, news of stricken banks, and recession fears quantified by bank analysts on the front pages of the Sunday press. It rapidly fell 4.8%, with the Dax and CAC 40 also about 5% down. Oil dipped below $90 for the first time since February, which for me is a sign of rising $ against the €, and good news as we head into winter fuel demand.
UK Recession fears are based on forecasts by economists at leading banks all predicting 2-3 quarters of negative growth for the UK next year and 700,000 more registered unemployed. Curiously the CBI survey suggests we are in recession already yet only 350,000 jobs will be lost next year? This is finger-in-the-air stuff since the Government has options open to it along the lines of how the UK avoided recession in 2001/02, but also because we will not know the true GDP figures for another 1-2 years and may (most likely) be in recession already!
We have to wait to see if the passing of TARP and expectation of funds repatriation to the US markets from Europe (attracted by TARP and by the rising $) persuade the Dow, NASDAQ, S&P etc. to tick strongly upwards. If not, then this is a vote of no-confidence for now in TARP! That would be a seismic shock, politically and economically! I hold to my forecast, however, that shares will rise, including banks' shares, through the enxt 3 months as we head for Christmas.
It was enough of a shock that Asia-Pacific markets sank today as investors focused on growing concerns about a global recession and more banks falling victim to the credit crisis, thereby leaving the passing of the US government’s TARP to fade into the background. The Nikkei 225 dropped to the lowest in four and a half years, losing 4.3%, while the broader Topix sank by 4.7%. Said one trader reported by the FT, “It’s absolutely the worst I’ve ever seen; people are tired, so it’s almost not even dramatic anymore when you see the declines. Everyone’s still so shell shocked after September and things are still going down.”
It's all up to the US investors and traders now to show their mettle. If the US shrugs off Europe's agonising and shares head north, it will be like moving directly from 1914 to 1917 and the arrival of the Americans at the front-lines in Belgium and France! In an earlier age we might actually worry about the prospects of war - how much better to only have an economic crisis and everyone talking to each other constructively we trust!