Wall Street soars 6%, local shares higher, IMF warns of ‘great recession’: Economy roundup

Wall Street has recorded its best day since October following banking giant Citigroup’s announcement that it has remained profitable in the first two months of the year.

The Dow Jones Industrial Average closed up 5.8%, while the S&P500 Index jumped 6.37%. 

Investors breathed a sigh of relief about the state of the banking sector after Citigroup chief executive Vikram Pandit said in a memo to staff that he is confident about the company’s capital stability.

The rally may have also been underpinned by investors buying shares to cover their short positions after the chairman of the US House Financial Services Committee said he hopes the “uptick” rule, which puts limits on the pace of short selling, will be re-introduced.  

Australian shares higher

Back home, the Australian sharemarket has opened 1.6% higher after the positive leads from Wall Street.

The benchmark S&P/ASX200 index was up 59.7 points or 2.02% to 3248.9 at 12.05 AESDT. The Australian dollar is also up to US64 cents.

AMP shares have gained 6.2% to $3.95 while Westpac also jumped 2.5% to $16.86. Commonwealth Bank shares have gained 3.8% to $28.84, as BHP Billiton gained 4.7% to $30.65.

But good news for the property industry, with housing finance increasing in January to 3.5% according to new figures from Westpac. The bank says the rise is in line with expectations, but is still not as strong as it expected.

“Housing finance has been in recovery mode for five months now, gathering momentum from December. New lending to owner-occupiers is up 12.5% over the last two months and 17% over the five months.”

The bank says that it expects finance to rise further in the months ahead, but rising unemployment poses a risk to any recovery. 

Meanwhile, the International Monetary Fund has warned that the global economy may enter a “great recession” for the first time in 60 years. Managing director Dominique Strauss-Kahn has said that the IMF’s current global forecast of 0% growth may have to be revised.

“The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” he said at the opening of a conference in Tanzania on the impact of the world financial crisis on Africa.

“Continued de-leveraging by world financial institutions, combined with a collapse in consumer and business confidence, is depressing domestic demand across the world,” Strauss-Kahn said.

“When we release our next package of forecasts at the spring session, that is to say in April, everything leads us to believe that it will indeed reveal a negative global growth for the first time in 60 years,” he told reporters.

Strauss-Kahn has said that he sees no chance of any global recovery before 2010.

Bad news for retailers

The bad news has continued on Australian shores, as independent forecaster Access Economics has said that the Government’s stimulus package will only help retailers “tread water”.

“The economic backdrop continues to get uglier, so these measures are likely to only result in real (inflation-adjusted) retail spending treading water in the first half of 2009,” director David Rumbens said.

“Indeed, Access Economics sees little growth in real retail spending being realised until the second half of 2010… retailers face a tough road ahead.”

New rules for future crises

Meanwhile, US Reserve Bank chairman Ben Bernanke has said that world leaders at next month’s G20 meeting must agree on new principles to help guide new financial rules in order to prevent future financial crises.

“It’s asking too much for a meeting like that to come out with detailed proposals in many different areas,” Bernanke told the Council on Foreign Relations. “The better goal for a meeting of leaders would be, as much as possible, to establish some principles that would guide reforms around the world.

“In particular, we need to work together effectively to make sure that we have solutions for our banking systems that are not mutually inconsistent or create problems across jurisdictions,” Bernanke said.