Market rallies after falls

THE reversal on Friday of seven straight falls by the Australian stockmarket is likely to be confirmed this morning, with strongly positive leads from overseas stockmarkets. The SFE 200 Future Index has risen 44 points, also supporting a strong market opening.

The Australian All Ordinaries Index rallied 64 points to 6309 on Friday – putting the index up 11.7 per cent for the calendar year to date.

All major Asian, European and US indices rose on Friday, with the Dow Jones Index in the US finishing 205 points higher at 13,450.

Gold prices staged a rally, jumping $US14.90 an ounce to $811; oil rose 2.5 per cent to finish at $US93.19 a barrel and base metals closed modestly higher on the London Metals Exchange.

Last week, the refinancing issues surrounding Centro Properties Group and Centro Retail Trust were reflected in a sharp sell-down of many listed property trusts, utilities and infrastructure stocks carrying higher levels of debt.

Centro is regarded as a very astute manager of shopping centres, with more than 600 centres in the US and Australia.

Unfortunately it appears that the group also borrowed short- term to support long-term assets.

The global banking sector, savaged by sub-prime write-downs, is now charging higher levels of interest and requiring more security before lending.

The extent of the sub-prime impact on the banking sector and cost of money will be of keen interest to investors in the first half of 2008.

Rising concerns about a US recession also led to falls across the market, although later in the week stronger than expected US personal spending figures allayed fears.

A rumoured $US5 billion injection by Singapore’s Temasek Investment Company into Merrill Lynch was also taken positively.

The US Federal Reserve successfully auctioned $US20 billion in new short-term credit at a higher-than-expected 4.67 per cent. The Federal Reserve intends to run these auctions bi-weekly for as long as necessary.

These factors were all interpreted positively by the market but also highlight the severity of the banking/credit crisis.

The author is a representative of Shadforths Ltd, a financial services licence holder (AFSL licence 233761). The above comments are the opinion of the author and should be considered as general in nature and not relied upon without professional advice.

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