Stockmarkets start to recover

6 October 2008

08/10/08: Global stockmarkets have started to recover as traders welcome co-ordinated rate cuts by central banks.

The UK’s FTSE 100 climbed by over 3% in early morning trading following the government’s £50 billion bank rescue plan and emergency 0.5% rate cuts across the globe. Similar gains were seen in France and Germany, with the CAC40 and Dax rising by 3.17% and 2.73% respectively.

Yesterday the FTSE fell by over 7%, the biggest one day fall since 1987 as recession fears played heavily on investors' minds. The International Monetary Fund (IMF) added to the gloom, warning that the world faces the most dangerous financial crisis for over 70 years.

Stockmarkets in France, Germany and the US also fell heavily.

However, investors have welcomed concerted efforts by the world’s central banks to lower interest rates. The head of the IMF, Dominique Strauss-Khan, said in a statement: “In the face of the deflationary impact, this is the right course of action.”

In Asia the Hang Seng index arose by 2.65% after China, South Korea and Taiwan followed the UK, US and Europe in slashing interest rates.

Meera Patel, a senior analyst at Hargreaves Lansdown, believes today’s gains are a good sign. “We have seen such unprecedented volatility this week, with markets continually falling despite rate cuts and the government’s rescue plan, so we are pleased with today’s gains. However, we are watching the markets hour-by-hour, but confidence seems to be returning.”

Yet Patel believes that it is still early days. “Who knows where stockmarkets will be by the end of the day, but we can only hope today will be much better.”

Market meltdown

On Monday 6 October, the value of Britain’s biggest businesses took a massive hit, with the FTSE 100 falling to a low of 4549.7 points.

Tuesday morning saw the markets bounce back, with investors hopeful that the Bank of England, as well as other central banks, might chop interest rates in response to the utter chaos engulfing the financial markets.

However, by the end of the day, Royal Bank of Scotland's share price had fallen by 30% to 129.4p in response to speculation that it was in talks with the government regarding an emergency bailout loan

The FTSE 100 plunge was prompted by Germany's Angela Merkel unveiling a €50 billion (£38.7 billion) rescue plan to save one of its biggest banks, Hypo Real Estate. Merkel also announced what appeared to be a 100% guarantee of all savers’ money, although it later emerged that this was not a legislative measure.

Denmark, Sweden and Greece, however, did issue concrete plans to guarantee 100% of all deposits in banks over the weekend, joining Ireland that set the precedent last week.

But warnings that Germany has not increased its protection level to 100% at all (instead just making more money available for possible compensation claims) caused share prices on the FTSE 100 to experience a sharp decline.

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