Reflecting the Rooseveltian view that "we have nothing to fear but fear itself," global stock markets rallied Tuesday for the second straight day, amid a flurry of government moves to prevent rocked financial and banking systems from collapsing. Less than a day after European leaders revealed a collective commitment of more than $1 trillion in capital injections and interbank loan guarantees, a 14% bound by Tokyo's Nikkei index led surges across Asia. Bourses in Europe also opened with renewed gains ahead of Wall Street's 3.8% opening spurt. Yet the burst of renewed confidence inspired sober observers to take up the Churchillian reminder that this is less "the beginning of the end" of the world's economic woe than it is, at best, "the end of the beginning."
For now, the world's markets seem willing to settle for that. After last week's losses wiped between 15% to nearly 25% of value off indices around the globe, formerly freaked traders scurried to buy back stocks as slow-moving political leaders responded in union to address the credit crisis. Outdoing Wall Street's 11% romp on Monday, the Nikkei shot up 14.2% Tuesday an all-time record making up for lost time after Monday's national holiday. But other Asian indices continued their previous climbs as well. Hong Kong's Hang Seng was up 3.2% over its 10.5% push Monday, while trading in Australia nudged 3.3% higher after a previous 5.1% jump.
Renewed optimism similarly reigned in Europe, where effervescent markets got a midafternoon lift from U.S. President George W. Bush's announcement of a new government plan to inject $250 billion of capital in exchange for equity into at least nine American banks. The move to further stabilize the U.S. finance market prodded rising European indices to move still higher Tuesday afternoon, with both Paris' CAC 40 and Frankfurt's Dax up 4.5% and London's FTSE 100 up 4.9%. The trio boomed with 11.2%, 11.4% and 8.8% surges respectively during the previous session.
If Monday's global rally was ascribed to weekend announcements by the G-7 and agreements by the 15 nations that use the euro to intervene in the crisis with huge financial assistance, Tuesday's repeat came as those measures were backed up by actual figures in both Europe and the U.S. In Paris on Monday, French President Nicolas Sarkozy pledged $488 billion to underwrite loans between banks and inject capital into troubled banks and financial groups. Similarly, German Chancellor Angela Merkel said up to $651 billion would be used for similar uses though primarily limited to underwriting lending between banks. Austria, Spain and the Netherlands weighed in with similar plans under a coordinated euro-zone strategy that some analysts have pegged as adding up to as much as $2 trillion.
Though Britain is not part of the group that uses the euro, British Prime Minister Gordon Brown revealed a further pledge of $63 billion to partially nationalize the country's three biggest banks a follow-through of his earlier approach that inspired the euro-zone plan. Ironically, Brown's quickness to act and sound tactics imbued the leader of Europe's most economically liberal and U.S.-inspired economy with the moral authority to urge his peers toward reform and greater regulation of their capitalist systems. On Tuesday Brown called for new international rules on trade, saying, "We must now create the right new financial architecture for the global age."
That will take time, but for now, most observers air cautious optimism that the government responses have turned the corner on the crisis. According to economist Jacques Mistral, head of economic research for the French Institute on Foreign Relations, the general fear that caused the bearish epidemic pushed markets so low that traders were already looking for a bottom from which to rebound.
"Governments provided that for them with their collective rescue approach, which, it has to be said, was rolled out exceptionally well," says Mistral. Markets didn't want just a plan showing the way out, Mistral says, but also promises from governments that further failures like that of Lehman Brothers would not be allowed to happen. "We've avoided the worst and will probably see things returning to close to normal," Mistral says. "Still, we've got two to three months of anxious waiting to see how bad the wider economic outlook will be."
Hervé Goulletquer, head of fixed income markets for Calyon, agrees
that rescue plans in the U.S. and Europe have "created a complete menu to
address the multiple areas of troubles threatening the banking system," thus
staving off what he says would have been a "global depression." Still, he
says the contagion and mutation of the crisis from one financial activity to
others makes it impossible to know what to expect in macro terms in the
Indeed, Paul Tsang, senior vice president at Polaris Securities in Hong
Kong, says he expects the rebound to continue as investors wait to see how
the proposed bailout plans affect financial institutions, but that
longer-term predictions remain murky. "My initial hunch is consolidation
will continue for one or two weeks," he says. "After two weeks, we'll see
another change, either up or down."
With reporting by Peter Ritter / Hong Kong