David Buik Comments: Stocks Boosted By CIT Rescue - People Daily Online

Peoples Daily Online, July 22, 2009

World stock markets rose strongly yesterday as already upbeat investors welcomed reports that US commercial lender CIT Group Inc is close to securing enough funding to avoid filing for bankruptcy protection from creditors.

European shares followed Asia higher, with the FTSE 100 index of leading British shares up 62.37 points, or 1.4 percent, at 4,451.12 while Germany's DAX rose 66.19 points, or 1.3 percent, to 5,044.59. The CAC-40 in France was 47.61 points, or 1.5 percent, higher at 3,266.07.

The main talking point in the markets yesterday was the future of CIT, which last week came close to bankruptcy when the Obama administration balked at bailing it out. The news that the ailing lender has approved a deal with bondholders for $3 billion in emergency funding has pushed Wall Street futures higher. Dow futures were up 57 points, or 0.7 percent, at 8,754 while the broader Standard & Poor's 500 futures rose 5.9 points, or 0.6 percent, to 942.80.

David Buik, markets analyst at BGC Partners, said it's imperative that CIT is saved as it provides finance to about 1 million smaller retailers and manufacturers.

'Were CIT to fail, it would put indecent pressure on the rest of the banking sector to accommodate outstanding loans they would not want to take on in the current climate,' said Buik.

The CIT news further fuels optimism from last week, when a run of stronger than anticipated US second-quarter earnings - particularly from the country's biggest banks - helped stocks around the world enjoy big gains.

Attention will once again be on the US earnings - among those to report include financial services and travel company American Express Co, aircraft maker Boeing Co and heavy machinery firm Caterpillar Inc.

The reporting season also kicks into gear in Europe, with pharmaceuticals company GlaxoSmithkline PLC, mobile phone operator Vodafone PLC, Swiss bank Credit Suisse AG and French foods company Danone SA.

Investors will also be looking this week to Washington for direction when US Federal Reserve Chairman Ben Bernanke makes his half-yearly testimony to Congress today and tomorrow.

A key concern for investors is how the central blank plans to eventually undo extraordinary emergency measures taken as the financial crisis deepened. Those include cutting interest rates to near zero and buying up government securities.

Investors remained wary of assuming gains will continue, as the March to June advance was predicated on similar hopes that the worst of the recession had passed.

Neil Mackinnon, chief economist at ECU Group, noted that the S&P index seemed 'a little tired' towards the end of last week and the index did not have the strength to take out the June high of 956.

'So this week's price action will be interesting,' he said.

Earlier in Asia, South Korea's Kospi added 38.41, or 2.7 percent, to 1,478.51. Most other major markets were also higher. Australian and Singapore shares were up 1 percent or more.

Indonesia's market was closed for a public holiday. It fell Friday after deadly bomb blasts at two luxury hotels in the capital Jakarta. Japanese financial markets were closed for a holiday.

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