The US Federal Reserve slashed the benchmark interest rate by a hefty half point to 4.75% in a so-called pre-emptive strike aimed at neutralizing the threat to the broader economy from the US housing market fallout. It adds that the central bank will ``act as needed to foster price stability and sustainable economic growth.'' The efficacy of this bold move remains to be seen as its effects percolate through the economy. Wise or otherwise, it is premature to say.
Lehman Brothers' quarter earnings fell 3.2% on writedowns linked to mortgage and leverage loans but the fall is below what investors were expecting. Lehman said the worst of the credit correction was over, helping soothe concerns that the US subprime mortgage crisis would hit hard on investment bank earnings. Some say that Lehman's being well diversified is what cushioned its earnings from the subprime hit, adding that those not well diversified like Bear Stearns which is also to report earnings this week may not fare as well.
A day of calm saw the shares of Northern Rock and other banks recovered ground with the UK government's guarantee helping stem the tide of frantic withdrawals and soothe market jitters. Despite this, analysts do not expect the banks to return to the levels they traded at before the Northern Rock crisis. The respite could be fragile and a whiff of negative news could easily send shares tumbling down again.
RealtyTrac's US Foreclosure Market Report found that the number of foreclosure filings 36% in August from July and 115% from a year ago, adding that the jump in foreclosure may just be the beginning as a large number of subprime adjustable rate loans (ARMs) are starting to reset now at higher rates.
US stock markets soared with the Fed announcement with the S&P 500 jumping nearly 3% and the Dow Jones Industrial up 2.5%.
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