European shares are seen tumbling Monday, according to market strategists, against the background of Wall Street’s turmoil over the weekend. One Financial is calling the FTSE down 106 at 5311, the DAX off 163 at 6072 and CAC off 140 at 4193.
That bleak outlook comes after markets snapped a three-session losing streak Friday on the back of a rebound for commodity stocks, with deal speculation providing a lift for Sacyr-Vallehermoso and SAS.
“Our commodity analysts believe that the ongoing correction in the commodity markets is overdone,” said strategists at Goldman Sachs.
Wall Street futures are sharply lower Monday, as markets in Europe and the U.S. brace for fallout from the weekend financial developments in the U.S.
But several investors said the reaction will be muted because markets had seen this coming. “Everybody’s prepared this time – it’s different from Bear Stearns,” said Jim Awad, managing director of Zephyr Management.
He added: “There could be a brief relief rally. You won’t get a 1,000- point shock drop because we’re all ready for it. But a grueling, long bear market will resume.”
The U.S. is mired in a “once-in-a century” financial crisis which is now more than likely to spark a recession, former Federal Reserve chief Alan Greenspan said Sunday.
Greenspan also predicted that the financial crisis would see the failure of more major financial institutions, even as embattled Wall Street investment giant Lehman Brothers scrambled to find a buyer.
“In and of itself that does not need to be a problem. It depends on how it is handled and how the liquidations take place. And indeed we shouldn’t try to protect every single institution.”
Financials “are going to be screaming buys at some point, but it’s too soon to be calling a bottom,” Jeff Harte says, a managing director who covers banks and brokers for Sandler O’Neill & Partners in Chicago.
David Ellison, a fund manager at FBR Capital Markets Corp. who had been deeply bearish on the sector, said he has recently bought “a few” financial stocks. “What you’re seeing now is the development of haves and have-nots,” Ellison says. “You have names like Wells Fargo on one side, which seems to be doing a good job of dealing with its negatives. Meantime, you have WaMu and Lehman on the other side.”
The U.S. Federal Reserve late Sunday announced plans to expand lending programs, hoping to stabilize financial markets after the collapse of weekend meetings to find a buyer for ailing investment firm Lehman Brothers.
The Federal Reserve announced that its board adopted a rule that temporarily allows banks to provide liquidity to their primary dealer affiliates for assets typically funded by the tri-party repo market. The rule provides a temporary exception to certain limits under the Federal Reserve Act. The exception expires on Jan. 30, 2009, unless it is extended.
A group of global banks and securities firms announced late Sunday a $70 billion loan program that financial companies can tap to help ease a credit shortage that threatens global financial markets.
In a rushed bid to ride out the storm sweeping American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $50 billion, including restricted stock and vested stock options.
Insurer American International Group Inc., succumbing to relentless investor pressure that drove its shares down 31% on Friday alone, is pulling together a survival plan that includes selling off some of its most valuable assets, raising more capital and going to the Federal Reserve for help, people familiar with the situation said.
Meanwhile, Lehman Brothers faced the prospect of liquidation, according to The Wall Street Journal.
In other corporate news, German chemical giant BASF SE on Sunday was close to a deal to bid for Swiss specialtychemicals company Ciba Holding AG, people familiar with the matter said.
With many Asian markets closed Monday, concern about the future of Lehman Brothers and American International Group has pushed the Australian share market down Monday. Financials are sagging on expectations of a plunge in their U.S. peers, while resources are outperforming on stronger commodity prices.