Market rout continues, while investors pray for big rate cuts

Market rout continues, while investors pray for big rate cuts

RTGAM

Investors appear to be praying for a little black magic from central banks to help staunch the tsunami of red ink rolling through global equity markets.
European markets, which had tanked again overnight, following Asia's lead, have recovered some of the lost ground on rumours of possible concerted action by central bankers.

Some strategists are theorizing that the Bank of Canada, which is due to unveil its latest interest rate setting at 9 a.m. (EST), may try to restart the Canadian stock market's heart by chopping a full half percentage point from its benchmark overnight rate, double the more standard quarter-point increment. There's also renewed speculation that the U.S. Federal Reserve Board may step in today with an unscheduled rate cut to try to stem the flow.

"It's rumour central," Mark Priest, a trader at TradIndex in London told Reuters. "We've heard rumours all morning. We've heard of a 75 basis point cut in the States (and) a co-ordinated cut by the Bank of England, Federal Reserve and the European Central Bank," he added.

"It's crazy that these markets all opened down 250-300 points and within an hour they're in positive territory ... Rate cuts are the only thing that are going to kick this market back up."

The rumblings about rate cuts scheduled or otherwise helped bring U.S. stock index futures back a touch, but they are still deep, deep in negative territory. This suggests, of course, that equity markets south of the border will plunge at the opening bell, catching up with the global rout that unfolded yesterday while U.S. investors were forced to stand on the sidelines for the Martin Luther King holiday.

At last count, the March futures contract on the Dow Jones industrial average was down 539 points or 4.4 per cent to 11,567, having earlier fallen as far as 11,456, while the S&P 500 contract is off 65.7 points or nearly 5 per cent to 1,259.6, up from a low of 1,255.3.
As for the March contract based on the Nasdaq 100, it is off 84 points or 4.5 per cent to 1,765.5, having earlier hit a low of 1,744.5.

"We're in a meltdown and it seems the global financial markets have gone mad," Peter Cardillo, chief market economist at Avalon Partners in New York told Reuters. "The only thing that could save this market is if [Federal Reserve Chairman Ben] Bernanke immediately cut interest rates by 100 basis points, perhaps that could reverse market psychology."

As for Europe, at about 8 a.m. (EST) the Dow Jones Euro Stoxx 40 was down 1.25 per cent, Britain's FTSE 100 was off just 0.2 per cent, and Germany's Dax was down a little more than 2 per cent.

But Asia had already finished another day of record losses. Japan's Nikkei 225 plunged 5.65 per cent, Hong Kong's Hang Seng 8.65 per cent, Shanghai's SE composite 7.2 per cent, Taiwan's Taiex 6.51 per cent and Bombay's Sensex 30 4.97 per cent.





Copyright 2001 The Globe and Mail