Greenspan and Rubin Heading to the Hill, and Stocks Look Higher

Author:
Justin Lahart
Publish date:
Sep 16, 1998 9:29 AM EDT

This afternoon,

Federal Reserve

Chairman

Alan Greenspan

and

Treasury

Secretary

Robert Rubin

will climb the Hill to speak before the

House Banking Committee

. The subject: international market turmoil.

The signals are mounting that the

Group of Seven

rich nations is prepared to stage a significant, coordinated effort to help subdue what has become the world economic crisis. There was Greenspan's speech in Berkeley, Calif., followed by his meeting with Rubin and Japanese Finance Minister

Kiichi Miyazawa

. There was

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President Clinton's

speech Monday, with its suggestions of not just an effort to spur growth, but of changes in the architecture of global finance. Despite accusations that the embattled president was just wagging the dog, this was truly significant.

There was the communique from G7 finance ministers that coincided with Clinton's speech, with its statement that "the balance of risks in the world economy had shifted" and its suggestion that the member nations would work closely together. There was the report in today's

Nihon Keizai Shimbun

that the G7 would likely come up with a coordinated plan for stabilizing world markets and the global economy by early October, according to

International Monetary Fund

Managing Director

Michel Camdessus

And there was the speech in Tokyo today by British Chancellor of the Exchequer

Gordon Brown

, who told bankers that "you will see a great deal more discussion of cooperation in weeks to come."

In all likelihood, Rubin and Greenspan will back up the message that the market has been getting in recent days.

"I think it is going to be very much an effort to reinforce the G7 communique," said Dana Johnson, head of capital markets research at

First Chicago Capital Markets

. "Basically an understanding that there is a large amount of stress on the world economy and that the risks are more to the downside for the U.S. economy and the global economy."

While the market will take that as an implication that the Fed will ease, Johnson notes that "as always, Greenspan will remain very vague about when and by how much." The main message, however, will be one of soothing nerves in what has become a crisis of confidence. "It really reflects an effort to reassure people that the major economies are not going to stand idly by and allow anything like a 1930s-style global depression to emerge," said Johnson.

These are the kinds of things that Wall Street wants to hear. This is a big part of why stocks were able to gain three days running. And while even in the best of times, it is common for the market to pause for breath, this morning the market looks fairly firm on the open. At 9 a.m. EDT, the

S&P 500

futures were up 4.9, about 4 above fair value and indicating strength at the bell. With global tensions continuing to ease, the 30-year Treasury bond was off 5/32 to 103 17/32, lifting the yield to 5.26%.

Tokyo stocks were mixed on a day when many investors rode the pine ahead of the speeches on the Hill today. A report in the

Nihon Keizai Shimbun

that

Long Term Credit Bank

and

Union Bank of Switzerland

were ending their relationship hurt some bank stocks. Furthermore, it appears that whatever agreement that the ruling

Liberal Democratic Party

comes to with opposition lawmakers on banking reform, weak banks will not get off scot-free. There will be winners and losers. The

Nikkei

shed 29.67 to close at 14,197.70.

In Hong Kong, the notion that world leaders are working to lend stability to emerging markets continues to be a positive. The