Friday, September 5, 2008

The merry-go-round slows as the ECB becomes the first to consider wielding the axe

Banks drag FTSE lower

It is now becoming public knowledge that the ECB is supporting banks and keeping them afloat, thanks to the ECB saying they are going to tighten their regulations on borrowing. People realise that perhaps the BoE will do the same, and everyone will realise that UK banks are borrowing off them to the tune of £200 billion. FTSE starts to crash, 4% yesterday and today already.... is this the next leg down?

Posted by beartil2010 @ 11:04 AM (869 views)
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8 thoughts on “The merry-go-round slows as the ECB becomes the first to consider wielding the axe

  • Text of article in case you can’t see the details:

    FTSE sinks further into bear territory
    By Michael Hunter

    Published: September 5 2008 08:40 | Last updated: September 5 2008 10:33

    Shares in London sank further in bear market territory on Friday as banks were once again under pressure because of mounting concerns about their sources of funding.

    The FTSE 100 lost a further 64 points, or 1.2 per cent to 5,298.3 after a late slide toward the end of the previous session took 138 points off the benchmark index. The sharp and sudden decline took the blue-chip index back into bear market territory, defined as a fall of at least 20 per cent from its most recent peak, which was 6,730 in June 2007.

    Insight: Calls for rate cuts in Europe – Sep-04Lex: UK equities – Sep-04Lex: ECB and the banks – Sep-05Asian shares down for fifth straight day – Sep-05US stocks tumble on poor retail sales figures – Sep-04The Short View: Smiling dollar – Sep-04The FTSE 250, seen as more representative of the UK economy, lost 1.9 per cent to 8,975.6, a loss of 174 points.

    HBOS fell a further 2.3 per cent to 276p, on fears it was the most likely bank to need to raise fresh capital. Barclays was 2.5 per cent weaker at 320½p and Royal Bank of Scotland fell 2.1 per cent to 222½p.

    The sector’s slide was triggered by moves from the European Central Bank on Thursday to tighten its criteria for taking assets as collateral for short-term loans. Traders were also worried the Bank of England would bring in similar measures next week, when its own Special Liquidity Scheme expires.

    ““[It is] a further squeeze on banks, increasing the pressure on them to do more expensive longer-term funding … when there is already investor concern about … their existing refinancing needs,” said Matt King, credit strategist at Citigroup.

    The darkening outlook for the UK economy continued to weigh on sterling, which reached a new 2½-year low against the dollar at $1.7538.

    Investors were also waiting for closely-watched US employment data, due at 1.30pm, and set to provide fresh insight into the health of the world’s biggest economy. Economists forecasts it would show a fall of 75,000 in the number of people employed outside the agricultural sector in August, but traders were ready for worse news.

    “The big number for many today will be the non-farm payrolls this afternoon but expectations here are for another disappointment, especially after weekly jobless claims were aligned in that direction yesterday,” said Matt Buckland at CMC Markets.

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  • Also from the FT:

    Brown loses battle over energy rebate

    Gordon Brown admitted defeat on Thursday in his battle to force energy companies to fund a £1bn ($1.76bn) cash rebate to poor families to help fight rising fuel bills.

    The prime minister told a Scottish business audience his long-awaited fuel poverty package would instead focus on energy companies funding a more modest – and less politically eye-catching – energy efficiency programme.

    Energy companies will be delighted that they appear to have headed off threats of a windfall tax or being forced to pay more for emissions permits, but some Labour MPs will be furious that the sector is not paying more to offset rising fuel bills.

    Mr Brown told the CBI the aim of next week’s package would be on making Britain “more energy-efficient, thus reducing bills not just temporarily but permanently”.

    But his dismissal of “short-term gimmicks and giveaways” conflicts with evidence earlier this summer that the government wanted to fund a £1bn one-off payment to up to 7m families receiving child benefit.

    The idea of giving direct cash payments to “ordinary families” was overheard being discussed on a train by Sir Brian Bender, the top civil servant at the Department of Business, which is overseeing talks with the energy companies.

    Meanwhile Mr Brown on Thursday struck a “cautiously optimistic” note over Britain’s economic prospects, a week after his chancellor warned the country was facing arguably the worst global conditions for 60 years.

    The prime minister told the Scottish business audience that the UK was resilient and the government would maintain investment and support households and businesses in spite of sharply deteriorating public finances.

    Mr Brown used his speech to concede the world was facing “the first great financial crisis of the global age” but he was less downbeat than Alistair Darling, chancellor, who spoke of conditions being the worst in the postwar era.

    Mr Brown said: “While never complacent about our economic prospects, I am also cautiously optimistic about the long-term resilience and underlying strength of the British economy.”

    He claimed that in spite of rising borrowing, the government could still continue to fund essential investment because it had cut the national debt from 43 per cent in 1997 to 37.3 per cent today.

    The prime minister also spoke of his determination to end “the dictatorship of oil”, promising big investment in nuclear and renewables to diversify Britain’s energy mix.

    Richard Lambert, director-general of the CBI, responded with a warning to Mr Brown to stop meddling with market forces, referring to this week’s housing package which the prime minister claimed would keep the market “moving forward”.

    Mr Lambert said: “Market forces have to be allowed to work their way through the system. There are no silver bullets to halt the decline of the housing market or to shoot the economy rapidly back to a growth path.”

    He said the focus should be on helping vulnerable members of society, who benefited from parts of the housing package, while letting market forces work.

    I like the line But his dismissal of “short-term gimmicks and giveaways” – That’s his stock in trade. I also notice the comment from Richard Lambert (head of the CBI no less) to not meddle in the housing market has gone virtually unreported.

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  • I like this bit ‘[the government] had cut national debt from 43 per cent in 1997 to 37.3 per cent today’ – well we are borrowing at over 40% now Gordon – I believe that that cutting will be from the budget surplus the conservatives handed you, bringing it down, and now you are increasing it again more than anyone else before you…

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  • If you think FTSE is bad. You should look at USA. The TOP winner is COCA COLA with 5 cent or 0.1% increase. This really illustrates everything.

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  • FTSE did not drop 4% yesterday and it is not down 4% today.

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  • A stock market crash on the face of it has been hindered so far by central banks’ ‘transfusions’ to the banking sector. There has been near on a crash over the last year, only it has been long and drawn out but camouflaged by the odd weekly+ rally,thanks to these transfusions.
    It is all therefore a false impression but the declines have been significant. Come the actual day of realization I suppose the markets will not have so far to crash. Thus the effect will not be armageddon.
    On the other hand : I have given more credit than due to what s happening and everything will end up worthless when the big day arrives.

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  • looks like the US stocks are going to go down again today after the jobs data – sessions opening soon. FTSE down 1.34, that’s 3.5% over 2 days. Pretty big consecutive movements – last time this happened we had the beginning of the US dollar rally. That can’t happen again surely… looks to me like we are in the slide and there won’t be enough good company news – US, UK or Europe – to stop it.

    A couple of months ago I was aiming for 4,000 end of August or September I can’t remember – wonder if I’ll be right?

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  • Jayk, it was over 2% yesterday and a 1.6% today when I posted the article in the morning – that’s 4% rounded. Don’t bother reading the details… or in fact commenting on them either constructively or humourously.

    The FTSE is now back to only a 0.5% loss today – must be looking ‘oversold’ to some people.

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