Financial markets were subdued in early trading Sunday night after congressional leaders said they are poised to pass a $700 billion rescue plan for banks, brokerages, credit unions, thrifts and insurance companies.
Failure to reach an agreement would have led to severe disruptions, analysts said. But even if investors did dodge a bullet and credit markets start to stabilize, the realities of a weak economy are likely to remain.
“When you start thinking of the broader issues, a lot of this is very troubling,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “We have in front of us a recession in the general economy, the consumer is dramatically retrenching their habits by cutting spending, and our financial system has sputtered.”
In electronic trading Sunday night, futures on the Dow Jones industrial average, Standard & Poor's 500 index and the Nasdaq 100 all rose about 0.1percent. The dollar recovered moderately against currencies such as the pound and euro.
There was subdued optimism in early Asian trading today. Investors bid up the Nikkei 225 Index in Tokyo by 1.1 percent and the Standard and Poor's/Australian Stock Exchange 200 Index by 0.2 percent. The stock market in Taiwan is closed because of Typhoon Jangmi.
The dollar also strengthened in Asia and was worth 106.785 yen by mid-morning after trading at 106.01 late Friday in New York.
Even if the plan is passed – the House votes today, and the Senate later this week – the economy remains balanced on the edge of a recession.
With worries running high about recessions around the world, global stock market volatility should remain elevated. And while anxiety about the financial institutions could keep boosting demand for Treasury bills, pushing short-term rates down for U.S. government debt, a glut of new issues with longer maturities that must be sold to finance the rescue plan could weaken the dollar over time.
In trading Sunday night, the euro fell to $1.4545, the pound fell to $1.8336, while the dollar rose to 106.28yen.