Here's my summary of the key news overnight in 90 seconds at 9 am, including news the People's Bank of China has eased monetary policy and eased rules on capital and rate setting in a bid to stimulate the flagging Chinese economy.
China cut its 1 year loan rate by 25 basis points to 6.31% and cut its deposit rate to 3.25% from 3.5%. The move surprised some economists who expected China to hold off a full easing until next year. China has already reduced its reserve requirements for banks, giving them more room to lend.
The People's Bank also eased restrictions on lending and deposit rates, opening up China's tightly controlled banking system to more competition. It also delayed moves to impose tougher capital requirements, again giving the banks more room to lend. See more here at Reuters.
Stock markets initially rallied overnight on the Chinese move. The FTSE 100 closed up 1.2% and US stocks rose as much as 1.1% through early trade.
But US stocks dipped in late trade after US Federal Reserve Chairman Ben Bernanke was surprisingly circumspect about the prospect for more easing. Stock markets have rallied this week on hopes for concerted central bank intervention to calm the Euro-zone crisis and boost slowing growth in America. The S&P 500 closed flat. See more here at Bloomberg.
Speaking to Congress, Bernanke said the central bank had options for easing, but he did not spell them out. Some had hoped for more specifics about either a third round of Quantitative Easing (money printing to buy government bonds) or an extension of the bank's 'Operation Twist', where it sells shorter term bonds to buy longer term bonds. See more here at Reuters.
Gold fell US$43/oz or 2.7% to US$1,590 on reduced prospects for more US money printing, Oil (WTI) fell 1.6% to US$83.62 on disappointment about the lack of immediate moves to stimulate the US economy.
Meanwhile, German's Angela Merkel said overnight Europe was ready to act to stabilise the Eurozone as Spain's credit rating was cut 3 notches by Fitch and it prepared for a bailout of its banking system that the IMF estimated could cost 40 billion euros. See more here at Reuters.
Bernanke also warned that an approaching 'Fiscal Cliff' could hurt the US economy. Tax cuts are due to expire and defence spending is due to be slashed automatically at the end of this year unless Congressional leaders can agree a new longer term budget deficit reduction plan. Early signs are the political leaders are unlikely to come to a deal any time before the Presidential and Congressional elections in November. See more here at Bloomberg.
Elsewhere, the Bank of England held its official rate at 0.5% and left its programme of quantitative easing unchanged at 325 billion pounds, as expected. Britain's inflation rate is above its targets, despite very weak economic growth, leaving the central bank little room for more easing. See more here at Bloomberg.
Disappointment over a lack of US central bank intervention saw appetites for riskier assets come off through the morning. This dragged the New Zealand dollar below 77 USc. It was around 76.7 USc in mid-morning trade.
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