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World Markets

The beginning of the week that passed was suspiciously quiet as nothing extraordinary had happened at the weekend, for the first time of late. However, it became clear very soon that problems of the financial system are still far from being solved and the global financial crisis keeps trundling down the beaten track, increasing its pace significantly. Judging by last week results, stock indexes suffered an across-the-board decline. Thus, American Dow Jones 65 Composite, Nasdaq and SnP 500 lost 4.8%, 9.3% and 6.8% respectively. In Europe the situation was even worse – Germany’s DAX 30 plunged 14.9%, Austria’s ATX PRIME fell by 13.2%, Finland’s HEX GENERAL shed 9.5% and the UK’s FTSE-100 was down 4.4%. The Tokyo Stock Exchange's Nikkei 225 index of leading shares almost hit its global lows it had reached at the end of the twentieth century, having posted a week-over-week reduction by as much as 12.0%.

The economic problems in Asian countries made the authorities there take emergency measures. The government of South Korea announced a package worth about $130 billion, offering a state guarantee on foreign debt and promising to recapitalize troubled banks. Besides, South-Korean company Samsung Electronics Co., the world's largest memory chip maker, said that its third-quarter net profit fell by 44% from the same period last year, to $869 million. India's central bank unexpectedly cut its rate from 9% to 8% and slashed its cash reserve requirement for commercial banks from 9.0% to 6.5%. In addition to the monetary control measures, Indian authorities launched programs aimed at stimulating the demand by providing relief and subsidies worth about $50 billion. Chinese authorities are very concerned about the state of the banking system as after some fruitless attempts to improve its health they had to resort to more serious measures. The government will pump $19 billion into Agricultural Bank of China and remove most of its $120 billion of “bad loans” from the balance sheet of the banking giant which owns about $878 billion of assets. In addition, Citic Pacific, a bank partially controlled by the Chinese government, said it lost $2 billion.

Financial Services Agency, Japan’s key financial regulator, is also trying to bolster its financial system. First, banks were allowed to value their bad assets based not on the market price, but on their “fair” value, and a possibility of lowering the capital adequacy requirements is being discussed now. Meanwhile, the financial crisis and the wanton growth of the yen have already affected the economy and corporate profits. For example, Japanese car maker Toyota Motor said its sales decreased for the first time in the last 7 years.

Banks in Western Europe do not cease to face serious problems. Last week, ING received an emergency injection of 10 billion euros and Bayerische Landesbank was given financial assistance of 5.5 billion euros. French bank Groupe Caisse d'Epargne suffered a loss of about 600 million euros due to “a trading mistake”. As a result, the chairman of Groupe Caisse d'Epargne resigned. EU authorities also decided to cancel their requirement of mark-to-market valuation of “bad assets”.

Events took an interesting turn in South America. Argentina was in the news last week with its government planning to nationalize the country’s ten leading private pension funds. In this case the government will take over about $30 billion in the private pension fund assets. Argentina's President Cristina Fernandez de Kirchner tried to convince the market of the government’s good and noble intentions, but the market did not believe her. Yields on short-term Argentinean peso bonds went up to more than 90 percent. In fact, pension funds have large holdings of the country’s state bonds and market participants came to a fair conclusion that the underlying reason behind the nationalization was unwillingness of Argentinean authorities to pay interest on these bonds. All these events had a rather adverse effect on Spain. Local banks and other companies have traditionally had strong positions in Argentina. One more interesting event took place in Mexico. Controladora Comercial Mexicana, Mexico's third-largest supermarket chain which successfully competed in the country with American Wal-Mart until quite recently, filed for bankruptcy, giving rather an oddball reason for that. The matter was that the company’s managers were not lucky trading on the Forex and that allegedly lead to a smashup of the whole group which has absolutely nothing to do with the currency market.

Much to everybody’s surprise, the USA did not get any serious shocks last week. Many pieces of corporate news came out, most of them being negative but not critically negative. Much attention in the financial sector was focused on American Express, which said its quarterly net income fell by 24%. Still, the public was more shocked by the news from Wachovia, which reported a third-quarter loss of $23.9 billion. We should also mention that Goldman Sachs said it intended to cut about 3,260 jobs, which accounts for about 10% of its work force. The report released by McDonald's turned out to be quite optimistic. On the other hand, Altria (Philip Morris) said that this year its earnings decreased by as much as two thirds from the previous year performance. Chemicals giants Dow Chemical and DuPont came up to the market expectations. The report published by Boeing appeared gloomy. The company’s third-quarter net profit dropped 38% to $695 million, down from $1.11 billion a year earlier. Alongside with this, Internet search engine Yahoo! Inc. was more successful. The company published its financial report revealing that its net profit soared by 60% to $727.7 million for the first nine months of the year against about $454.3 million for the similar period a year earlier. In turn, US computer giant Apple Inc. published its financials. Despite the financial crisis, the company managed to achieve good results in the financial year of 2007 through 2008, much better than analysts had expected. According to Apple’s financial results for the year ended September 29, 2008, the company’s net profit rose by 38% to $4.834 billion up from about $3.496 billion a year earlier. Macroeconomic news also influenced the course of trading. In particular, the US National Association of Realtors published a report saying that US existing home sales rose by 5.5% in September 2008 to a 5.18 million-unit annual rate from August. Analysts had expected a more modest increase to 4.92 million units.

However, the most interesting events happened on the Forex. The euro plunged below $1.25, the British pound plummeted to touch $1.525 dollars, and the Aussie dollar fell to $0.61. The euro-yen cross rate fell to 114, and pound/yen cross decreased to 139. Friday was especially wild, when in 12 hours the euro sank by 5 cents, the pound declined by 10.5 cents, and the pound/yen was also lower by 20 yen. Only in four days did the pound lose as much as 40 yen in its price. On the whole, the currency market was in a state of permanent hysterics. Gold touched a fresh low of about $680 an ounce. Brent oil fell by another 10.7% to $60.75 per barrel on the IPE despite an emergency measure by OPEC to slash oil output by 1.5 million barrels a day.

Ukrainian Market

From Monday through Tuesday, the Ukrainian stock market felt more or less confident, but the external and internal pressure which had strengthened by the middle of the week did not give it even the slightest chance of growing. According to the results of trading from October 20 through October 24, the PFTS index “grew thinner” by another 12.8%.

Among most actively traded stocks there were power companies Zakhidenergo (-11.9%), Centerenergo (-17.5%) and Dniproenergo (+39.9%), engineering companies Krukivka Wagon Works (-19.5%) and Ukravto (-18.8%), metallurgical enterprises Azovstal (-25.4%) and Alchevsk Iron & Steel Works (-35.2%), banks Raiffeisen Bank Aval (-22.6%) and Ukrsotsbank (-7.6%). Stock quotations of steelmakers, banks and engineers fell more than others, having lost, on average, 29.7%, 19.3% and 17.0% respectively.

According to a rumor spread in the media on Thursday, Mariupol Illych Iron and Steel Works has allegedly terminated production and steelmakers association Metallurgprom said that metals enterprises will post more than 4 billion hryvnia losses in October through December. Apart from the fact that metallurgical enterprises are major customers for many other branches of the Ukrainian industry, declines in the demand for metal products will reduce the dollar inflow in the economy of Ukraine, thus stimulating the national currency devaluation which we can observe now.

In this situation, financial support from the IMF can help Ukraine to cope with the aftermath of the double blow caused by a decline in metals prices and consequences of the financial crisis. Let us remind you that on October 26th the Ukrainian authorities and the IMF came to an agreement that Ukraine will receive a $16.5 billion loan to deal with its economic problems.