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US markets join global recovery | US markets join global recovery |
(10 minutes later) | |
Global stock markets have recovered some ground from last week's sharp falls, after central banks moved to ease fears of a world credit crisis. | Global stock markets have recovered some ground from last week's sharp falls, after central banks moved to ease fears of a world credit crisis. |
US markets opened up on Monday, echoing European gains, as the Federal Reserve said it had put an extra $2bn (£994m; 1.5bn euros) into the banking system. | US markets opened up on Monday, echoing European gains, as the Federal Reserve said it had put an extra $2bn (£994m; 1.5bn euros) into the banking system. |
The European Central Bank earlier said it was giving a further 48bn euros. | The European Central Bank earlier said it was giving a further 48bn euros. |
By 1535 BST, the Dow Jones index was up 0.5% to 13,307.5, while the Nasdaq added 0.8% to 2,564.2 points. | By 1535 BST, the Dow Jones index was up 0.5% to 13,307.5, while the Nasdaq added 0.8% to 2,564.2 points. |
In Europe, London's FTSE 100 rose 2.6%, France's Cac-40 was 2.2% ahead and Germany's Dax rose 1.5%. Earlier, Asian markets posted modest rises. | In Europe, London's FTSE 100 rose 2.6%, France's Cac-40 was 2.2% ahead and Germany's Dax rose 1.5%. Earlier, Asian markets posted modest rises. |
Investors also reacted well to official figures showing a stronger-than-expected rise in July's retail sales. | Investors also reacted well to official figures showing a stronger-than-expected rise in July's retail sales. |
As a result of the calm on the markets, oil prices also gained with US light, sweet crude rose $1.64 to $73.11 a barrel in New York trade, while in London Brent crude meanwhile climbed $1.42 to $71.81. | As a result of the calm on the markets, oil prices also gained with US light, sweet crude rose $1.64 to $73.11 a barrel in New York trade, while in London Brent crude meanwhile climbed $1.42 to $71.81. |
Sub-prime woes | Sub-prime woes |
Recent financial market volatility has been triggered by the US sub-prime mortgage sector, which offers higher-risk loans to people with a poor credit history. | |
Is Europe's central bank bailing out hedge funds unnecessarily? Robert Peston, BBC Business Editor Robert Peston's blog Q&A: Sub-prime lending | Is Europe's central bank bailing out hedge funds unnecessarily? Robert Peston, BBC Business Editor Robert Peston's blog Q&A: Sub-prime lending |
As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime lenders have defaulted on their loans prompting extensive financial difficulties for a number of investment funds with heavy exposure to the sector - and triggering fears of a wider financial crisis. | |
While some estimates say $300bn in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem. | While some estimates say $300bn in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem. |
"The big question is what is the overall amount [of loans at risk], and this is bad for the markets because if there is one thing that the markets hate, it is uncertainty," said Gilles Moec, senior economist at Bank of America. | "The big question is what is the overall amount [of loans at risk], and this is bad for the markets because if there is one thing that the markets hate, it is uncertainty," said Gilles Moec, senior economist at Bank of America. |
Over the weekend several banks began putting a figure on their bad debts, including German state bank WestLB which said it had 1.25bn euros in total exposure to the US sub-prime sector. | |
Banking moves | Banking moves |
To try to ease fears over available credit, several central banks have intervened by injecting money into the banking sector. | To try to ease fears over available credit, several central banks have intervened by injecting money into the banking sector. |
The European Central Bank (ECB) was the first - releasing 95bn euros on Thursday. It has since put in another 109 euros. | The European Central Bank (ECB) was the first - releasing 95bn euros on Thursday. It has since put in another 109 euros. |
Japan's central bank put one trillion yen ($8.5bn; £4.2bn) into the financial system last week and 600bn yen on Monday. | |
Most importantly, the Fed intervened twice on Friday, pumping $38bn into the system, before Monday's extra contribution. | |
But while some said it made sense, other feared it only made markets more nervous. | But while some said it made sense, other feared it only made markets more nervous. |
"The ECB was correct to shore up banks' balance sheets by providing more liquidity," said Peter Morici, professor at the University of Maryland School of Business. | "The ECB was correct to shore up banks' balance sheets by providing more liquidity," said Peter Morici, professor at the University of Maryland School of Business. |
"But its high-profile tender offer did more to scare markets than calm them." | "But its high-profile tender offer did more to scare markets than calm them." |
Other analysts said it did not solve the underlying weakness in the US mortgage sector. | Other analysts said it did not solve the underlying weakness in the US mortgage sector. |
"It's certainly very reassuring that central banks are providing liquidity, but that doesn't repair or make go away any losses funds have experienced from the sub-prime sector," said Guy Hutchings, of MFS Investment Management. | "It's certainly very reassuring that central banks are providing liquidity, but that doesn't repair or make go away any losses funds have experienced from the sub-prime sector," said Guy Hutchings, of MFS Investment Management. |