Shares soar across the globe as investor confidence returns: Economy roundup

Investors have picked themselves up off the canvas and have launched into a buying frenzy, with the Australian sharemarket soaring 6% in early trade following yesterday’s jump of 5.6%.

Investors have picked themselves up off the canvas and have launched into a buying frenzy, with the Australian sharemarket soaring 6% in early trade following yesterday’s jump of 5.6%.

The benchmark S&P/ASX200 index rose 5.7% or 236.7 points to be at 4417.4 points at 11:30am AEST.

As was the case yesterday, banking stocks are enjoying a revival. ANZ and NAB are up 8.4% and 9% respectively, while Westpac is up 4.3% and Commonwealth Bank has risen 5.4%.

Another big winner today was Fortescue Metals Group, which has seen its share prices slump from around $12 to less than $3 in the last four months. Today the stock has soared a whopping 48.9% from $3.51 to $4.20, boosting the value of founder Andrew Forrest’s stake from $3.5 billion to $4.2 billion – a rise of $706 million, or $7.8 million a minute during the first hour-and-a-half of trade.

The incredible two-day surge was boosted by a big night on global markets following moves by US and European governments to spend billions propping up shaky banks and financial institutions.

The Dow Jones Industrial Average surged 936.42 points, or 11.08% to 9387.61 in its biggest one-day point gain ever. It is also the biggest percentage gain since 15 March 1933, when the global economy was in the midst of the Great Depression.

Markets across Europe also soared, with the FTSEurofirst 300 index of top European shares jumping 10.1%.

Investor confidence is being underpinned by the growing realisation that the governments of Europe, the United States and even Australia will not let any more banks fail. That has effectively put a floor under banking and finance stocks, which have been sold off sharply in the last few months.

Governments and central banks are now hoping credit markets will start to thaw and banks will start lending to each other once again, filled as they are with renewed confidence about the ability of other banks to meet their loan repayments.

But don’t think we are out of the woods just yet. As a report in the New York Times points out today, European banks need to refinance $US375 billion in the fourth quarter of 2008 and another $US339 billion in the first quarter of next year. If the banks can’t roll over this debt, we are headed for another round of problems.

In other economic news, NAB released its monthly business survey this morning showing business confidence and conditions remain relatively stable. The survey was taken at the end of September and in early October – before last week’s sharemarket crash – so the results should be taken with a pinch of salt.

However, the survey does highlight how the financial sector chaos is spreading to the real economy, with businesses trimming expectations for forward orders and capacity utilisation. Job cuts are likely to be just around the corner.