Beginning of the end?
By Richard Hunter | 24 Apr, 2008
Perhaps – just perhaps – there are some early shoots of recovery emerging in the embattled global markets.
In terms of interest rates, the Federal Reserve in the US has acted quickly and aggressively. For its part, the UK’s Monetary Policy Committee has been more circumspect, whilst the European Central Bank has chosen not to act at all.
Where the Central Banks have been united, however, is their joint attempt to stabilise money markets by a continuing injection of capital. To date, this has had limited impact since banks are becoming increasingly unwilling to lend to each other (let alone businesses or individuals) as they try to shore up balance sheets which have been damaged by the fallout from the sub-prime crisis.
In another example of how fickle market perception can be, there have been some rather more positive noises. The recent JP Morgan results in the US were certainly not spectacular, but nonetheless they showed that the company managed to make money in the first quarter of this year. Thus, that the figures were not as bad as expected and the stock reacted positively is a reflection of how jittery markets remain.
Indeed JP Morgan’s Chief Executive mentioned that in his opinion the credit crisis is “maybe 75% to 80%” over and this was echoed by the eminent fund manager Mark Mobius, who noted that the current flood of writedowns coming from banks really is the “kitchen sink” equivalent of getting all of the bad news out of the way.
As a forward discounting mechanism, the markets are of course at any time some months ahead in trying to predict what will be happening. As such, there is a possibility that some of the worst may be over, since the more recent rate cuts have still not fully washed through to their respective economies, whilst (for example) the Fed’s fiscal boost will not take hold until the summer.
Perhaps the market in banking stocks is slowly beginning to agree – Royal Bank of Scotland shares, for example, are up 23% over the last month (although they remain 46% down over the last year). And at Barclays, there has also been some more recent optimism, with the shares’ monthly performance coming in at +22% (-37% over 12 months).
There remain other large factors at play – not least of which is the possible recessionary spell the US economy is suffering – but if a large unknown which has stalked the markets for some months can be removed, there will be a palpable sigh of relief – watch this space.
