KEY POINTS:
Words of hope from the new American President could do nothing to lift the fearful mood of world stockmarkets yesterday as concerns about the banking sector deepened.
Even as Barack Obama delivered his inauguration speech to the gathered masses in Washington, Wall Street traders were dumping banking stocks.
State Street - the world's biggest institutional asset manager - posted big losses in its commercial paper programme and investment portfolio and plunged 59 per cent, Citigroup fell 20 per cent and Bank of America lost 29 per cent. The ailing Royal Bank of Scotland fell 69 per cent in New York trading.
The sell-off pushed the benchmark Dow Jones index down 4 per cent - the biggest Inauguration Day drop in history. The S&P 500 closed down 5.3 per cent and the tech-heavy Nasdaq index closed down 5.8 per cent.
The negativity flowed around the globe with Japan's Nikkei falling 2 per cent Hong Kong's Hang Seng falling ****. Australia's ASX200 was down 1 per cent.
In New Zealand the NZX-50, which has little real exposure to the banking sector, fell just 0.2 per cent.
Disappointment with Obama's inauguration speech, which laid out few new details on how his administration will tackle the banking crisis and flagging economy, helped push stocks lower.
Richard Cripps, chief market strategist for Stifel Nicolaus, said the market's decline was interrupted briefly by Obama's inauguration speech but that the markets then continued to trade on the problems in the financial sector.
"There's just tremendous fear and uncertainty in the banking sector," Cripps said. "Even those closest to the issue, like executives and analysts, there's a feeling of tremendous uncertainty. They're not giving any positive guidance because they just don't know. Lacking that [certainty] we're left to our worst fears, and that's what you're looking at with bank stocks."
"People still have expectations for his economic policies, but we know nothing concrete about them, so the market has no choice but to focus on the real economy and earnings," said Yutaka Miura, chief technical analyst at Shinko Securities in Tokyo.
But other market players said hopes that helped power a global stock rally around the New Year had been unrealistic.
"As for Obama, perhaps you can say his impact has worn off, but soon he'll actually start carrying out his policies and we'll start seeing a reaction to what he really does," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.
The market's angst, which began with multibillion losses reported last week by Bank of America and Citigroup intensified after the Royal Bank of Scotland's forecast that its losses for 2008 could top US$41.3 billion ($78.4 billion).
"The concern is that banks around the world are short of capital. As we increasingly come to that realisation, stocks are just getting hammered," said Philip Schwartz at ING Investment Management in New York. "We're very concerned about metals and overall industrial demand."
The shrinking value of bank stocks means the financial industry accounts for less than 10 per cent of the Standard & Poor's 500 index for the first time since 1992. At the end of 2006, banks made up 22 per cent of the stock market benchmark.
President Obama swore to preserve, protect and defend the Constitution against a backdrop of a deep economic downturn, a trillion dollar federal deficit and fears of more bank losses. He suggested Wall Street would see greater oversight: "Without a watchful eye, the market can spin out of control."
His aides vowed to go to work immediately, armed with the authority to spend the second half of the US$700 billion financial rescue plan and a proposed stimulus package of US$550 billion in spending and US$275 billion in tax cuts.
AROUND THE WORLD
* New Zealand (NZX-50)-0.2 per cent
* Australia (ASX200)-1 per cent
* Japan (Nikkei)-2 per cent
* Hong Kong (Hang Seng)down X.X per cent
* US (Dow Jones)-4 per cent
- AGENCIES
