US markets fall as bank fears rise; should Obama nationalise Citigroup and BOA?; Chinese government promises more "large scale" economic stimulus; North Korea to launch "satellite"; and more
Top of the Agenda: Bank Fears Rattle Markets
New concerns about instability at U.S. banks pushed global stocks sharply lower yesterday and today, ahead of President Barack Obama's highly anticipated speech to Congress on the struggling U.S. economy. U.S. stock indices fell to their lowest level since 1997, with the Dow Jones Industrial Average plummeting 3.4 percent (FT). Asian traders responded this morning by staging their own sell-off; Hong Kong's index fell nearly 3 percent and Japan's Nikkei index fell about 1.5 percent (WSJ) to its lowest close in twenty-six years.
The declines came amidst new concerns about the banking industry, as U.S. officials revealed more details of a plan that could result in the government taking large capital stakes in U.S. banks. In a joint press release, the U.S. Treasury, Federal Reserve, and three other banking regulators said they would start a series of stress tests aimed at discovering whether large banks have enough capital to survive a deeper-than-expected recession. If the banks do not have enough capital, the government plans to step in by buying preferred shares of the banks to provide a "capital buffer"-an outcome many analysts say could result in the nationalization (WashPost) of parts of the U.S. banking sector.
The news bolstered shares of beleaguered banks like Citigroup and Bank of America, even as JP Morgan Chase announced that financial weakness would force cuts of 87 percent (WSJ) in the firm's stock dividends. The New York Times reports the U.S. government is also facing pressures from other beleaguered industries, automakers and insurers among them, for additional capital on top of the money Washington has already poured into stabilizing firms in these industries.
President Obama is expected to release more details about his financial rescue plan in a speech to Congress that some analysts are describing as a "State of the Union-like" address. NPR previews the address and says Obama will attempt to strike a tone that will likely "resemble neither a pep rally nor a wake."
Analysis:
- The Economist examines whether the nationalization of Citigroup and Bank of America is appropriate.
PACIFIC RIM: North Korea 'Satellite'
North Korea spoke out following weeks of intelligence reports from South Korea that Pyongyang is preparing to test a long- or medium-range missile. Pyongyang said it is preparing to launch a "satellite" (Yonhap) from its northeastern coast. The BBC reports the statement has only fueled speculation about a possible missile test.
- A recent op-ed from CFR's Scott Snyder looks at U.S. policy on the Korean peninsula and argues that controlling Pyongyang's nuclear program will be Washington's primary concern.
CHINA: China's Communist Party warned of an "austere and complicated" year (Xinhua) economically for China and said it would release a comprehensive new economic package to address weaknesses.
JAPAN-U.S.: The Asahi Shimbun previews talks between Japanese Prime Minister Taro Aso and U.S. President Barack Obama, the first talks between Obama and a foreign leader at the White House. The article says the talks are expected to revolve around shared economic concerns.
Elsewhere:
Taliban in Pakistan's Swat Valley announce cease-fire extension.
First Guantanamo release during Obama administration.
This is an excerpt of the CFR.org Daily News Brief. The full version is available on CFR.org.