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90 seconds at 9 am: Fed eases again by extending Operation Twist; markets disappointed on no QE III; Merkel rejects direct bond buying; Bank of England almost printed again
Here's my summary of the key news overnight in 90 seconds at 9 am, including news the US Federal Reserve has eased monetary policy again in an attempt to fire up growth in the world's largest economy.
The US Federal Reserve's monetary policy setting Federal Open Markets Committee (FOMC) announced a plan to extend the Fed's 'Operation Twist' programme of selling short term government bonds and buying longer term government bonds. This is aimed at 'twisting' the curve of bond interest rates so that longer term rates fall relative to shorter term rates. It's called the 'Twist' because the US Federal Reserve used the tactic during the early 1960s when the 'Twist' was a popular song.
The FOMC announced it would add another US$256 billion to its existing US$400 billion 'Twist' programme. See more here at Bloomberg.
The Federal Reserve is aiming to encourage households and businesses to borrow more to spend and invest to boost the economy, however it hasn't worked that well so far. The credit 'channel' seems blocked as those who need to borrow don't have good enough credit ratings or any equity left in their homes to borrow against, while those could invest and spend are already cashed up and are fearful about investing and spending given the uncertain economic outlook globally.
The Dow and S&P 500 closed down 0.2% and 0.3% respectively as investors and traders were disappointed the Federal Reser ve's easing measures didn't include a third round of money printing to buy government bonds, known as Quantitative Easing. They were also concerned about the extent of the US Federal Reserve's reductions in its economic growth forecasts. The Fed cut its forecast for US economic growth in 2012 to 1.9-2.4% from 2.4-2.9% in its April forecast. The Fed also cut its 2013 growth view to 2.2-2.8% from 2.7%-3.1% previously. See more here at Bloomberg.
The Fed also saw US unemployment staying above 8% until well into next year, which is a problem for US President Barack Obama. No US President has been elected to a second term with unemployment over 8%.
Meanwhile, in Europe, German Chancellor Angela Merkel was true to form again overnight, saying 'Nein!' again to proposals to use European resuce funds or the European Central Bank to buy Southern European bonds directly, a measure many say is the only hope to keep the euro-zone together and avoid an economic calamity. See more here at Bloomberg.
Elsewhere in Europe, Greece's new pro-bailout coalition government was sworn overnight and its first comments were that it wanted to soften the bailout terms. Merkel again said 'Nein!' to any suggestion of changing Greece's bailout package or austerity targets. See more here at Reuters.
In Britain, minutes from the Bank of England's last policy setting committee meeting were released showing it narrowly decided not to start printing money again to boost its economy. Bank of England Governor Mervyn King voted for another 50 billion pounds of quantitative easing to buy government bonds, but was voted down 5-4 by the rest of the committee. See more here at Reuters.
The New Zealand dollar was strong over 79 USc overnight amid all the talk of money printing and easing by overseas central banks, which would devalue their currencies, making the New Zealand dollar relatively stronger.