Global equities stumbled at the start line of a raucous week, amid concerns raised by G7 officials about the ‘uncertain’ financial outlook with potential subprime losses estimated to touch USD 400 bn. However, Warren Buffet’s offer to take over USD 800 bn of municipal bonds served as a short term palliative but shares of bond insurance majors soon slumped once the proposed plan was out as the Berkshire Hathway stayed away from taking over the non munis, especially the murky mortgage backed securities. However the offer coupled with a strong retail sales data had done well to boost global equities as they gained considerably over the next two days. But the buoyant mood quickly disappeared as investors digested several unwelcome bits of news about global financial behemoths including the USD 11.3 bn Q4 loss by UBS as well as Moody’s downgrade of bond insurer FGIC’s AAA rating. The Dow, which had swung more than 175 points in each of the previous two sessions, fell 1.63% over the last two days while the FTSE ended down 1.57%. Markets gasped across the finish line, clinging to a modest gain, with the Dow up 0.88% over the week.
Meanwhile, mounting losses and the threat of credit-rating downgrades continued to hit the embattled bond and mortgage insurance industry. The country’s largest mortgage insurer, MGIC Investment Corp, posted a USD1.47 bn loss in the fourth quarter, while Moody’s downgraded bond insurer FGIC Corp’s AAA rating to A3 after the company’s capital base weakened considerably owing to its exposure to the US residential mortgage market. With FGIC having lost its top rating from all three major rating agencies, it can prompt money-fund managers to unload their FGIC insured holdings, further aggravating the ongoing credit crisis.
The Fed Chairman Ben Bernanke sounded a gloomy note about the economy in his congressional testimony. Leaving the door open for a sizable rate cut next month, he cautioned that intensifying credit and financial-market pressures are likely to restrain economic growth. Voicing concerns over the adverse impact of the roiling bond insurance industry, Bernanke noted that market worries about mortgage defaults and the ripple effects of bond insurers' woes are contributing to tighter lending standards.
Meanwhile, mounting losses and the threat of credit-rating downgrades continued to hit the embattled bond and mortgage insurance industry. The country’s largest mortgage insurer, MGIC Investment Corp, posted a USD1.47 bn loss in the fourth quarter, while Moody’s downgraded bond insurer FGIC Corp’s AAA rating to A3 after the company’s capital base weakened considerably owing to its exposure to the US residential mortgage market. With FGIC having lost its top rating from all three major rating agencies, it can prompt money-fund managers to unload their FGIC insured holdings, further aggravating the ongoing credit crisis.
The Fed Chairman Ben Bernanke sounded a gloomy note about the economy in his congressional testimony. Leaving the door open for a sizable rate cut next month, he cautioned that intensifying credit and financial-market pressures are likely to restrain economic growth. Voicing concerns over the adverse impact of the roiling bond insurance industry, Bernanke noted that market worries about mortgage defaults and the ripple effects of bond insurers' woes are contributing to tighter lending standards.
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