NEW YORK, 19 January 2008 — World stocks steadied yesterday after sharp falls earlier this week as investors digested the likely impact of an economic stimulus package announced by President George W. Bush to help avert a potential US recession.
Major bond markets were also little changed after sharp falls in yields earlier this week, and the US dollar steadied also.
Bush called for a package of tax cuts and other measures totaling around 1.0 percent of US gross domestic product, or about $140 billion, amid bleak reports on retail sales and other data this week suggesting a possible recession.
Under consideration in the talks with the Democratic-led Congress are ideas like tax rebates, incentives for businesses, and extensions of unemployment insurance.
“At first blush it appears it is a little less dramatic than people were hoping for,” said Peter Kenny, managing director of Knight Equity Markets, Jersey City, New Jersey.
“Uncertainty is primarily the reason why the market has gone lower. The market is hoping for help both fiscally and monetarily that it can qualify as likely to have a real impact,” he said.
US stocks fell yesterday on concerns that the White House effort to boost the economy would not be enough to forestall a recession.
Financial and telecommunications companies were among the top declining sectors on the S&P 500, wiping out earlier gains on optimism about earnings from bellwethers IBM and General Electric Co.
The Dow Jones industrial average was down 31.95 points, or 0.26 percent, at 12,127.26. The Standard & Poor’s 500 Index was down 8.07 points, or 0.61 percent, at 1,325.18. The Nasdaq Composite Index was up 3.60 points, or 0.15 percent, at 2,350.50. European stocks fell for a fourth straight day as banks and insurers tumbled on renewed worries over mortgage-related losses, while investors gave a cold initial reception to a US economic stimulus package.
The FTSEurofirst 300 index of top European shares closed 1.2 percent lower, at 1,358.51 points. Europe’s benchmark index closed a dismal week with a loss of 4.8 percent.
Earlier, Japan’s Nikkei average recovered from an early dive to end 0.6 percent higher yesterday, lifted by expectations for the US economic stimulus package. The Nikkei ended the session up 0.6 percent at 13,861.29.
Treasury debt yields were little changed yesterday as an early rebound in US stocks lost steam on investor fears the economic stimulus package might not be enough.
“It is probably going to be too little and too late,” said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co. in Seattle.
Benchmark 10-year Treasury notes were trading with a yield around 3.64 percent.
European government bond yields fell, for the fourth straight week, as the threat of a US recession continued to weigh on stock markets, boosting safe-haven flows.
The 10-year Bund yielding was trading around 3.964 percent, as expectations grow that the European Central Bank will also start lowering its benchmark rate from the current 4.0 percent in coming months after recent signs of a slowdown in the euro zone economy.
Japanese government bonds yields slipped yesterday as investors pushed into safe-haven debt even as Tokyo shares staged a rebound from steep initial losses.
Japan’s benchmark 10-year yield edged down to 1.385 percent, back near a 28-month low hit the previous day.
“The market is starting to recognize the possibility of a BOJ rate cut, but it is not seriously pricing it in,” said Maki Shimizu, a bond strategist at UBS.
The US dollar was little changed as investors weighed the likely impact of the Bush fiscal package.
“The market is no longer viewing the US economic slowdown in isolation. Although domestic demand-based emerging growth will provide a counterbalance, a cyclical global moderation now appears more likely,” UBS said in a note to clients.
The euro traded down 0.1 percent at $1.4644. Against the yen, the dollar rose 0.4 percent to 107.19 yen.
Investors cautioned that the dollar’s problems are not over yet with the longer-term outlook for the US economy remaining bleak.
“The market is definitely nervous about any risk of the ECB signaling that rates have peaked, and that’s keeping us in relatively tight ranges,” said Adam Cole, global head of currency strategy at RBC Capital Markets.
US crude oil steadied above $90 yesterday, after a three-day slide. On the New York Mercantile Exchange February crude was up 62 cents at $90.75 per barrel.
Wednesday’s $89.26 low was the weakest since crude fell to $88.88 on Dec. 18. NYMEX crude hit a record $100.09 on Jan. 3.
Gold bounced from a one-week low yesterday after this week’s climb to a record above $900 an ounce.
Gold hit an intraday low of just over $870 an ounce before rebounding to $879.90.
“External factors such as higher inflation expectations, broader economic concerns, geopolitical tensions and Fed rate easing are likely to drive prices higher,” Barclays Capital said in a report.
Gold saw a record high at $914 an ounce earlier this week.