Today's Key Points

Daily Forex Fundamentals | Written by Danske Bank | Sep 19 08 07:41 GMT |

Danske Daily Stock markets rally on news that the US authorities are working on setting up a government entity to take over toxic assets from the banks. Another proposal on the table is a plan to introduce federal insurance of money market funds. Financials led the gain on Wall Street, as bank shares surged on the government proposals and as regulators and pension funds have been working to curb short-selling of banks and brokerages. On the data front things should be very quiet today. We have German producer prices this morning but otherwise nothing of importance. Focus continues to be on developments in the financial crisis. Markets Overnight US equity markets rallied strongly yesterday on new initiatives by the US authorities to address the problems in the financial sector. The S&P500 index rose 4.3% to 1206, and the Dow Jones index gained 3.9% to 11020, thereby broadly erasing Wednesday's losses. It became a volatile trading session, though, as stock prices rose early in the day, on the announcement of new actions by the main international central banks to inject dollar liquidity into the system, but prices fell again later in the session as sentiment changed. Then finally, one hour before close, equities rallied strongly on news that the US government is working on a series of programs to seek a more permanent solution to the financial crisis. The US Treasury, the Federal Reserve, and Congress met yesterday evening to discuss the creation of a government- sponsored investment vehicle to inject funds into financial companies in exchange for equity stakes. The Treasury said that they were 'exploring all options, legislative and administrative, and expect to work through the weekend with Congressional leaders to finalise a way forward'. This would be a very decisive move by the US authorities and bears some resemblance to the Resolution Trust Corporation used to restore markets following the Savings and Loan crisis of the 1980s. The rally in equity markets has continued in Asia and at the time of writing the Nikkei225 index is up by 3.3% trading at 11876. Meanwhile, US Treasuries have been sold off and the yield on 2-year notes is up by 22bp from Wednesday's US close trading at 1.85%. The yield on 10-year notes rose 18bp to 3.60%. On the commodity market, the crude oil for delivery in October is close to unchanged overnight trading around USD 98 per barrel, while the price on gold has edged slightly lower. The dollar strengthened on the US initiatives and EUR/USD has fallen just below 1.42 overnight, while USD/JPY has risen to 107. The Scandies appreciated against the euro in yesterday's trade taking EUR/SEK to 9.58 and EUR/NOK to 8.28. Global Daily Focus continues to be on developments in the financial crisis. Sentiment got a big boost yesterday from the news that the government is working on setting up a government entity to take over toxic assets from the banks. Another proposal is a plan to introduce federal insurance of money market funds – as is the case for bank deposits. This should help to alleviate pressures in the money market where losses in money market funds have diminished the funds' function as a liquidity provider. The overall plan sounds quite comprehensive from media reports and could be key in stopping the negative spiral in financial markets where worries over new losses continue to hover over the market as a dark cloud, and banks struggle to raise capital. If this positive sentiment is sustained we should see bond yields go higher again today. On the data front things should be very quiet today. We have German producer prices this morning, but otherwise nothing of importance. Danske Bank http://www.danskebank.com/danskeresearch Disclaimer This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets´ research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.