More interesting information on the power of the Federal Reserve vs Governmental Fiscal policy (presidential and congressional power)...
It's pretty clear that the global markets are freaking out as to whether the Fed is trying to create a recession in the US.
And this has created a flight to quality from stocks to bonds. But since the Fed normally takes its lead from the market interest rates, this "slushing" of money from equities to bonds actually sets the stage for lower market interest rates, which the Fed really has to base its future interest rate hikes on.
And this sets the stage for renewed economic growth in the US.
Essentially, what we've seen is a move by the Fed, coincidentally, or deliberately, to drain some of the speculation out of emerging markets, and pull some of that money back to the US markets.
And it shows that US Governmental debt is STILL where the world turns when it's looking for safety.
Hawk
Nikkei books 3-mth closing low on U.S. rate concern
Tue May 23, 2006 3:03 AM ET
(Adds stocks, comment, byline)
By David Dolan
TOKYO, May 23 (Reuters) - The Nikkei average posted its lowest close in three months on Tuesday, dropping 1.63 percent as exporters such as Honda Motor Co. Ltd. (7267.T: Quote, Profile, Research) lost ground due to concern about further interest rate increases in the key U.S. market.
Mitsubishi UFJ Financial Group Inc. (8306.T: Quote, Profile, Research) declined after its profit outlook disappointed investors, helping send the broader TOPIX to its first close below 1,600 since late February. News that ratings agency Standard & Poor's lifted its outlook on Japan's long-term sovereign rating to positive from stable did little to boost the market. [ID:nHKG147718]
Concern about higher U.S. interest rates -- and their effect on global stock markets -- continued to prompt investors to shift funds into government bonds and other investments seen as lower risk, said Katsuhiko Kodama, senior strategist at Toyo Securities.
""Right now, concern about further rate increases in the U.S. is having a big impact on the market," he said.
The flow of money has changed.... It's bonds, in both the U.S. and Japan."
The Nikkei <.N225> finished down 258.67 points at 15,599.20, its lowest close since Feb. 20.
The TOPIX index <.TOPX> finished down 2.27 percent at 1,579.26, also its lowest finish since Feb. 20.
The continuing slide in Tokyo share prices helped support Japanese government bonds for a third straight session.
The 10-year yield fell 3.5 basis points to 1.795 percent <JP10YTN=JBTC>, its lowest level since early April.
Shares of Honda Motor fell 3.7 percent to 7,280 yen on concerns that higher interest rates could crimp consumer spending in its key export market, the United States.
Fellow exporter Tokyo Electron Ltd. (8035.T: Quote, Profile, Research) dropped 4.3 percent to 8,120 yen.
Mitsubishi UFJ Financial Group, the most actively traded stock in terms of value, dropped 6.1 percent to 1.53 million yen.
The world's biggest bank by assets reported a group net profit of 1.18 trillion yen ($10.5 billion), the largest ever for a Japanese bank, but said its profit would likely fall 36 percent this year, short of analysts' expectations.
U.S. RATES, GLOBAL IMPACT
Falls in U.S. stocks, which have been hit by concerns about further U.S. rate increases, were sending ripples across the world's markets, said Shigemi Nonaka, chairman of Polestar Investment Management.
"While it is sort of a catch-all reason, the fact is that as U.S. stocks decline, that impacts world stocks ... and its true in Japan, too, where foreign investors now have a lot of influence."
"Things would be a little bit different if the U.S., if (Federal Reserve Chairman Ben) Bernanke, would say that an end to increases is coming. However, we don't know when they will stop, so that's having an impact on the market."
Higher interest rates are seen as a negative for stocks as they raise borrowing costs and crimp consumer spending.
Sompo Japan Insurance Inc. (8755.T: Quote, Profile, Research) fell 6.5 percent to 1,351 yen after the Asahi daily said the Financial Services Agency would order Japan's second-largest casualty insurer to suspend some operations for a month.
A Sompo Japan spokesman said the company had not been informed of any such measures by the FSA, and an FSA spokesman said it was not true that the agency had made such a decision.
Shares of Mitsubishi Electric Corp. (6503.T: Quote, Profile, Research) fell 4 percent to 909 yen. The company said the U.S. Justice Department is investigating it for possible antitrust violations related to its dynamic random access memory business in the United States between 1998 and 2002.
Trade was active, with 2.06 billion shares changing hands on the Tokyo exchange's first section, the highest since May 17. Declining stocks outnumbered gainers by a ratio of more than 6 to 1.
© Reuters 2006. All Rights Reserved. |
