Here's my summary of the key news overnight in 90 seconds at 9 am, including news stock market investors cheered hopes that central banks would intervene shortly to try to stimulate the European and US economies again and stave off a Euro-zone financial meltdown.
The Dow rose 286 points or 2.4% overnight and European stocks rose the same amount on hopes the central bank cavalry is galloping over the horizon. It also welcomed talk that European officials were working on a Spanish bank rescue. See more here at Reuters.
A Wall St Journal report that the US Federal Reserve was considering more stimulatory measures after weak US jobs growth and signs of deepening Euro-zone financial stress was the catalyst.
However a close reading of the report from renowned Fed-watching journalist Jon Hilsenrath suggests strong divisions within the US Federal Reserve and that a decision for either a third round of quantitative easing, known as QE III, or an extension of the 'Operation Twist' long bond buying programme is no sure thing in the Fed's meeting scheduled for June 19 and 20. We'll get more detail from the bearded horse's mouth tonight when Federal Reserve Chairman Ben Bernanke testifies before Congress.
Markets also took heart from comments by the European Central Bank's President Mario Draghi that the bank 'stands ready to act'.
The trouble was it didn't act overnight. The ECB held its official cash rate at 1% and Draghi rejected suggestions the ECB could reopen its Long Term Refinancing Operation (LTRO) to lend unlimited amounts of 3 year loans to banks.
“I don’t think it would be right for the ECB to fill other institutions’ lack of action,” he said, Bloomberg reported.
Meanwhile, German industrial output slowed more than expected and Spanish factory production slumped by the most in two years. See more here at Bloomberg.
Also, in another sign of the times, Monsanto announced plans to spend some of a record cash pile on buying back US$1 billion of shares as its profits strengthened. See more here at Bloomberg.
One of the problems in the global economy is the growing phenomenon of corporate hoarding as cashed up companies with strong profits remain reluctant to invest to create new jobs and output. Instead, that cash is being invested in government bonds or returned to shareholders, who are in turn stashing it in government bonds rather than reinvesting it or spending it.
However, all this overnight appetite for risk saw the New Zealand dollar rose to just over 77 US c in morning trade. It has risen almost 2 cents this week on hopes for central bank intervention and the prospect of more money printing in America and Europe. The Australian dollar has also strengthened 2 US cents to over 99 USc, boosted by much better than expected Australian first quarter GDP growth figures yesterday.
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7 Comments
Well AJ..bet there are millions of peasants in the EU flat stick buying food and stuff to store in their cellars and attics...the better off will be buying art and little treasures hopeful they will hold some value in the collapse to come...the stinky rich will have their gold well hidden by now...the Banker parasites shifted their booty out long ago...
Is NZ a safe place for capital....!
Andrewj - Martin Wolf's solution seems to be more of the same i.e. money printing and increasing debt. It seems to me that the main problem of OECD countries forever expanding their welfare states is coming to its logical conclusion, they have run out of other people's money. I don't see how these Gov'ts will ever sort this mess out when they either don't understand the problem or choose to ignore it.
Andy
I don't think so, he writes "Before now, I had never really understood how the 1930s could happen. Now I do..." The point I *think* he is trying to make is that in a crisis you must act decisively and collectively which you can't if you are a fragile coalition
I see this everyday when i talk to people about the situation, if it doesn't affect them directly they don't even see a problem let alone want to contribute to a solution, look at the protests going on at the present point, all about "not me!"
Neven
Reading on the GD some ppl who were not effected ie got or kept a job didnt see it as a big issue.....in fact their money went further and further every day....So yes I agree...right now many ppl who are not impacted much simply dont get it....and will be blindsided.....
regards
It seems to be you cant and dont want to see that there are different thoughts to your own. The problem is not the welfare state, but consumer and other non-productive spending using debt as the fund.
Further, Sweden has a large welfare cost its in pretty good shape, by your argument it should be the leading basket case....it isnt. More than a few other countries have negligable welfare states and are in a very bad way....more than enough evidence to not conclude welfare is the primary problem.
debt is and lack of demand is.
regards
It seems the markets expect more money printing by the US, Europe- in some form-, the UK and others. And rightly so, I would say, as money printing is much better than just watching the global economy go down the gurgler.
From an NZ perspective, what then should our Reserve Bank do? If nothing, then our dollar goes up, and so we lose market share in many industries. Some of the overseas funds will find their way here, forcing a further loss of ownership, and/ or greater indebtedness.
We should be printing our relative market share of extra money; and saying to our banks that we don't really want the extra foreign stuff, thanks very much. As a minimum we should ensure that the return the foreigners receive for any extra funds is minimal in terms of interest rates, although given Switzerland is getting away with negative rates, that solution would not fix the underlying problem. Only a few extra virtual Ed Hillarys in circulation would do so.
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