World markets have responded positively to a public-private investment
program designed to buy up hundreds of billions of dollars worth of
questionable assets currently on the books of American banks.
U.S.
Treasury Secretary Timothy Geithner outlined further details of the
plan Monday, which would relieve banks of up to a trillion dollars worth of bad debts.
In Asia, the mood was upbeat as the planned purchases of troubled
mortgages which lie at the very heart of the credit crisis in the United States had a positive effect on global markets.
In Tokyo,
the Nikkei closed 3.4 percent higher on the day to reach a two-month
high while shares in Hong Kong jumped 4.8 percent. In Europe, the same positive news from the U.S. Treasury department sent shares up.
While no one is talking in terms of recovery yet, the mood in trading centers such as London is starting to change.
Stephen
Pope, the chief market strategist at the global financial services firm
Cantor Fitzgerald says many traders feel the toxic asset rescue plan is
important because it addresses the root cause of the credit squeeze.
"People
sense that these plans, these rescue plans, will work otherwise the
capitalist system falls apart and that is not going to happen. So, I
think now you are beginning to find investors who are actually a bit
overloaded with money on deposit earning zero percent, are starting to
be a little bit more encouraged to go out and put a toe in the water
and increase their risk profile," said Pope.
But
even though the mood may be slightly shifting, Pope says any true
recovery will take time, and during that period things like unemployment
can worsen before they eventually turn around.
"The
employment indexes are always a lagging indicator by around six months
so if you start to see the stock market front-running up, say, from
middle of the second quarter, then it probably means that at the turn
of the year is when the general economic pattern begins to improve," Pope said.
The
United States was under pressure to unveil the plan to deal with
troubled assets before the April 2nd G-20 summit of leading
industrialized nations takes place in London.
Although mentioned
in broad terms last month, market players have been waiting to see the
specific details before embracing the public-private program.
