Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news of a wild rally on US stock markets in the last hour of trade on hopes the US Federal Reserve will rescue stock investors with yet more money printing in some form.
The US Federal Reserve has pledged to keep its Federal Funds Rate at or near 0% until mid 2013, but has made no mention of plans for a third round of quantitative easing or money printing to buy US Treasury bonds. However, it did indicate it would use other unspecified tools to revive activity. Stock markets latched onto this suggestion, but bond markets began pricing in a long recession or worse.
US stocks wobbled sharply after the Federal Reserve statement's release at 6.15 am, but the Dow rebounded strongly in late trade to close up 4% or 430 points. The S&P 500 rose 4.75%.
Investors grabbed at comments from the Fed that it had considered alternative policy tools to restart the economy and would use them if needed. The Fed did not specify the tools.
Here's what the Fed said: "The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate."
The New Zealand dollar also moved violently, initially jumping from 81.70 USc to 82.40 USc, then falling back to 80.60 USc, before bolting back to 83.7 USc by 9 am.
The New Zealand dollar has been the most volatile currency in recent days, given it is seen as connected to appetites for risk and to prospects for commodity prices. It has moved in a four cent range in the last two days.
When stock markets are rallying, investors are seen putting 'risk on' such currencies as the New Zealand and Australians. Risk was definitely 'on' in the last hour of trade in New York.
US Treasury markets also rallied (prices up and yields down), but the interpretation of their views is less rosy for the global economy.
The US 2 year Treasury yield fell to 0.2%, while the 10 year bond fell as low as 2.05% after the Fed's comments. That is as low as it got in December 2008 in the depths of the US recession.
Some commentators, such as Karl Denninger at Market Ticker, viewed this as bond markets indicating they saw a Japanese-style multi-year deflationary depression on the horizon for the US economy.
Another view is that interest rates will be held down by central banks and governments while inflation is allowed to run at a higher rate to reduce the real value of the debts weighing down the developed economies. See my comment piece on The Great Repression to come here.
(Updated with closes, Fed comments, charts, NZ$ moveslinks)
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