Global fever

The West is experiencing its biggest financial crisis in decades

Even the most optimistic investors could see yesterday that global financial markets are far from recovery. The American economy appears to be in even worse shape than market participants expected. Investors are in panic withdrawing their assets from dollars, which is why yesterday the euro updated its historical maximum against the US currency - $1.5904 per euro. Quotes of other world currencies also increased sharply - the Japanese yen and the Swiss franc. In Russia, the euro exchange rate crossed the 37 ruble mark for the first time since December 2004. per euro. The dollar exchange rate decreased by 0.5% to 23.51 rubles.

Stock markets also experienced a deep fall. European trading floors lost 2.5--3.5%, Asian ones - 4--5%, American exchanges opened with a fall of 2%. The RTS index fell by 3.6% yesterday, the MICEX index lost 4.2%.

Investors are in a panic transferring funds into instruments of commodity markets, primarily oil, as a result of which the North Sea crude Brent jumped in price to $106.2 per barrel, and futures for the American standard WTI to $112 per barrel. However, towards the evening, after US President George W. Bush announced the reliability of the country's financial institutions, there was a price correction of 2-3 dollars.

Former Federal Reserve Chairman Alan Greenspan has already called the current financial crisis the worst since the end of World War II. US President George W. Bush, who felt the need to speak to the press yesterday after a meeting with economic advisers, said: “In the long term, the economic situation in the country will improve. But now we find ourselves in a difficult situation.”

Poor statistics on the US economy, constant statements about corporate defaults, it seemed, should have helped investors develop at least some immunity to negative news and factor in bad scenarios in quotes. However, the market was not ready for the actual bankruptcyof the investment bank Bear Stearns . Statements about the problems of the fifth largest American bank plunged stock prices of the world's largest financial companies by 4-8% on Friday. Yesterday it became clear that this was only the beginning of a new round of problems for investors.

On Sunday, JP Morgan Chief Executive Officer Jamie Dimon said he had agreed to buy ailing Bear Stearns for $236.2 million, or $2 per share. This amount is more than ten times less than the market value of the investment bank last week. To complete the deal before the opening of trading in Tokyo, the Fed decided to support JP Morgan with $30 billion. “Jamie Dimon made an excellent deal, considering that the Fed also paid him for it,” says the founder of the hedge fund Quantum, a partner, ironically George Soros Jim Rogers.

The news of the sale was perceived by investors as the final collapse of one of the main brands of the US financial system. Asian markets were the first to react to this event on Monday. Japan's Nikkei 225 fell 4.5% to 11,691.00, its lowest level since July 2005. Hong Kong's Hang Seng fell 4%. Australian and Indian indices also experienced a similar collapse. “We have a credit crisis situation in almost every corner of the market,” says chief economist at Mizuho Research Institute Ltd. Tetsuro Sugiura. “The collapse that befell Bear Stearns shocked market participants.”

Following Asia, a wave of sales hit European stock exchanges. The leaders of the decline were securities of the banking sector. The drop in shares of Swiss UBS, the largest European bank by assets, exceeded 10%. The shares of the British Royal Bank of Scotland and Barclays, as well as the mortgage bank HBOS, fell within the same range. The general picture was complemented by the German concern Siemens, which reported that it expects a decrease in profits by 900 million euros in the first quarter due to disruptions and delays in some large contracts. Siemens shares suffered their deepest decline since 1989, falling 14%. By mid-trading, the British FTSE 100 index lost 2.45%, the German DAX fell by 3.33%, and the French CAC 40 by 2.77%.

The Russian RTS index fell by 3.56% - from 2064 to 1990 points. The cost of blue chips fell by an average of 2-4%. Nevertheless, traders do not see a big tragedy in what happened.

“In January, when investors fled the Russian market en masse, we could see a deeper decline, and then trading turnover was much higher,” says one of the traders. -- Now shares are sold mainly by those players who need to “cover” losses in other assets. Most investors who remain in Russia are well aware that there will be no growth for a long time. I think we won’t see the light at the end of the tunnel until September of this year.”

American markets also opened lower. Shares of investment bank Lehman Brothers fell by more than 30%. The Dow Jones index fell by 1.21%, the Nasdaq technology sector index fell by 1.87%. The situation was exacerbated by mortgage insurer PMI Group Inc., which reported its largest quarterly loss in its history, mainly related to its investment in mortgage insurer FGIC Corp.

In the context of a worsening crisis, American financial authorities decided to use a proven remedy to improve the situation - lowering interest rates by the Federal Reserve. On Sunday evening, the discount rate at which banks lend by 0.25% to 3.25% per annum was urgently reduced. The Fed said in a statement that the move is intended to support “market liquidity and normal functioning.” At the same time, the term of loans provided to banks at this rate has been extended from 30 to 90 days. Today, the Federal Reserve is scheduled to hold a scheduled meeting on monetary policy, at which it is expected to lower the key interest rate - the federal funding rate - from the current 3% per annum to 2% or 2.25%.

Commenting on the Fed's Sunday actions, its Chairman Ben Bernanke expressed confidence that they will be perceived by financial institutions as "more meaningful guarantees of access to monetary resources." "The Fed, in close consultation with the Treasury Department, is working to ensure the liquid, well-functioning financial markets that underpin economic growth," Mr. Bernanke said.

US Treasury Secretary Henry Paulson said the Fed's latest actions "will enhance the stability, liquidity and orderliness of American financial markets."

George W. Bush said yesterday that he "supports the actions taken by the Federal Reserve to restore order to the financial markets." According to the president, he wants to convey to the people of the country and the whole world the fact that “the United States is in control of the situation in the financial markets.” “We are going through difficult times,” the US President acknowledged, adding: “We are taking strong and decisive action.” In addition, Bush continues to repeat that the US economy is fundamentally in order: “Our financial institutions remain strong and our capital markets operate efficiently and wisely,” Reuters quoted the US president as saying. “We will, of course, continue to monitor the developments of the situation and, when necessary, will act decisively to gradually restore order in the financial markets.”

However, market participants saw signs of panic in the Fed's actions, and its decision caused an even greater weakening of both stock markets and the US currency. According to experts, radical measures by the regulator will not be effective, given the huge losses already existing. "This massive increase in spending is sending the Fed's balance sheet down a slippery slope," said American Enterprise Institute professor Vincent Reinhart, who previously headed the Fed's monetary policy office. “This immediately indicates that the economy is in a very precarious state.” However, some experts believe that it will take time for the new measures to work. "These actions underscore the Fed's commitment to action with urgency," said David Jones, a former economist at the Federal Reserve Bank of New York. “It’s sad to see that these measures are causing the market to go down now, but over time they will lead to stabilization of the market.”

One of the most influential economists in the world, former Fed Chairman Alan Greenspan, believes that the current financial crisis is the worst since the end of World War II. In his opinion, “the crisis will end only after real estate prices stabilize, which, in turn, will lead to stabilization of the cost of bonds that are issued on the basis of mortgages.” The former head of the Federal Reserve believes that many will suffer from the current crisis, and primarily holders of speculative capital.

Against the backdrop of a new wave of economic problems in the United States, the dollar continued its long decline. In relation to its main competitor, it once again updated its historical minimum, falling to $1.59 from $1.567 per euro. Against the Japanese yen, the US currency weakened to 95.72 from 99.5 for the first time in 12 and a half years.

“The rapid decline of the dollar on world markets can be explained by several factors,” says MDM Bank trader Pyotr Neymyshev. “One gets the feeling that investors, like traders, completely underestimated all the problems of the American economy, in particular, the collapse of Bear Sterns.” The sharp drop in the dollar can also be explained by the panicky sentiments of investors, which are also fueled by speculators who are actively playing to lower the exchange rate of the American currency. Finally, the US Federal Reserve's actions to cut its rates are also contributing to the collapse of the dollar. “We believe that fundamentally the dollar is now oversold - investors have focused their attention on what is happening in the United States, but not everything is going smoothly in the European economy either. A too cheap dollar makes European and Asian goods less competitive in the market. - says Mr. Neymyshev. -- It is possible that the ECB, together with the Bank of England and the Bank of Japan, will take measures to support the dollar, and there will be a slight upward rebound in quotes. I don’t think today’s record of $1.59 per euro will be broken anytime soon.”

The official dollar exchange rate set by the Central Bank fell by 0.5% yesterday - from 23.64 to 23.51 rubles. The euro rose in price by 0.6% - from 36.89 to 37.11 rubles. In the first minutes of trading, the dollar rapidly became cheaper. In particular, the first transaction took place at a price of 23.44 rubles per dollar, which is 17.2 kopecks lower than the close on Friday. However, as the pressure on the US currency weakened on the Forex market, its quotes in Russia rose slightly during trading. As a result, according to the results of trading in the morning session, the weighted average dollar exchange rate was 23.51 rubles. However, as market participants point out, the value of the main operational indicator of the Central Bank's foreign exchange policy - the bi-currency basket - remained around the levels of 29.61-29.64 rubles during the day. “The Central Bank is holding the bi-currency basket practically unchanged, which means that regardless of fluctuations in the dollar-euro pair, the situation on our market will remain stable,” notes Mr. Neymyshev. However, in the future, the American currency will apparently continue to fall. “In the medium term, dollar quotes will continue to decline, but not at such a rapid pace as now,” Mr. Neymyshev believes.

Natalya ROMANOVA, Nikolai KOCHELYAGIN