Global Markets

Global financial market turmoil continued last week with many central banks (except the Bank of England) providing funds to maintain liquidity. The climax was early Friday morning in the U.S. session when the Federal Reserve cut its discount rate by 50 basis points to 5.75 percent. It left its policy fed funds rate unchanged at 5.25 percent. The move sent equities soaring in Europe and later in North America while the U.S. dollar declined. This was the most turbulent week for markets since March 2003 at the height of the Iraq War according to the Vix index of market volatility — it rose to a high of 37.5 on Thursday.

As is obvious in the graph above, none of the major stock indexes has escaped unscathed from the current turmoil. And they have lost all or most of their 2007 gains and then some. The worst performers are in Japan where stocks have been buffeted by carry trade unwinds.

Asian markets, hit hardest in the week, had closed before they could react to the Fed move. The Nikkei was down 5.4 percent Friday — its worst daily loss since the September 2001 terrorist attacks. The Nikkei, down 8.9 percent in the week, is now down 11.3 percent from its December 2006 close. Only the FTSE and DAX ended the week with a gain. The indexes that are now down in 2007 include the Nikkei, Topix, FTSE, and CAC.

The Fed acts

The Federal Reserve took emergency steps to mitigate the damage to the U.S. economy from the global credit market crisis. The Bank cut its discount rate by 0.5 percent to 5.75 percent, while keeping the main federal funds rate at 5.25 percent. The discount rate is the rate the Federal Reserve charges when lending reserves to banks directly. This is in contrast to the fed funds rate which is what banks charge other banks when lending spare reserves. The move, which surprised the markets, should improve liquidity and limit the blow to financial institutions from the deterioration in assets exposed to the meltdown in the U.S. subprime mortgage sector.

Global Stock Market Recap

		2006	2007		% Change
	Index	Dec 29	Aug 10	Aug 17	Week	Year
Asia
Australia	All Ordinaries	5644.3	5965.2	5670.30	-4.94%	0.46%
Japan	Nikkei 225	17225.8	16764.1	15273.68	-8.89%	-11.33%
	Topix	1681.1	1633.9	1480.39	-9.40%	-11.94%
Hong Kong	Hang Seng	19964.7	21792.7	20387.13	-6.45%	2.12%
S. Korea	Kospi	1434.5	1828.5	1638.07	-10.41%	14.19%
Singapore	STI	2985.8	3359.2	3130.71	-6.80%	4.85%
Europe
UK	FTSE 100	6220.8	6038.3	6064.20	0.43%	-2.52%
France	CAC	5541.8	5448.6	5363.63	-1.56%	-3.21%
Germany	XETRA DAX	6596.9	7343.3	7378.29	0.48%	11.84%
North America
United States	Dow	12463.2	13239.5	13079.1	-1.21%	4.94%
	NASDAQ	2415.3	2544.9	2505.0	-1.57%	3.72%
	S&P 500	1418.3	1453.6	1445.9	-0.53%	1.95%
Canada	S&P/TSX Comp.	12908.4	13466.3	13049.6	-3.09%	1.09%
Mexico	Bolsa	26448.3	29420.5	28510.7	-3.09%	7.80%
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