Here's my summary of the key news over the weekend in 90 seconds at 9 am, including news US jobs grew 80,000 in June, which was less than the 100,000 expected by economists.
Slowing growth in the world's largest economy is heightening expectations the US Federal Reserve will launch a third round of money printing to buy government bonds known as Quantitatative Easing (QE III) as early as August 1. See more here at Bloomberg.
However, there remain doubts over the US Federal Reserve's willingness to intervene and, if it does, whether it will make much difference. QE III is designed to lower long term interest rates, but many American borrowers are either already loaded up with debt or lack confidence to invest in their businesses or to spend on consumer goods. Also, many US banks are reluctant to lend and are instead reinvesting cash in government bonds or putting it back on deposit with the US Federal Reserve.
Meanwhile, the Euro-zone crisis is back on in earnest after just a week of reprieve after the much-hyped European leaders summit two weeks ago.
Spanish 10 year bond yields spiked back over 7% and the Italian 10 year bond rose over 6% as disappointment over the European Central Bank's lack of action on buying of Southern European bonds. German 2 year bund yields fell into negative territory again, which effectively means investors are paying the German government to look after their money. This is a symptom of capital flight from Southern Europe by investors who fear a Euro-zone breakup would force the devaluation of their euro savings in Spain and Italy back into pasetas and liras. They believe their euros would be safer in Germany in the event they are turned into marks. See more here at Bloomberg.
Spain's Prime Minister again lamented Spain's inability to borrow money from bond markets with yields this high. Also, France's Finance Minister called over the weekend for an urgent recapitalisation of Spanish banks.
Meanwhile, in China, Premier Wen Jiabao acknowledged that downward pressure on the Chinese economy was 'relatively large' and the government would 'intensify fine-tuning' of policies to try to boost growth, however he said the government would keep its controls on the property market, which some economists say is driving the Chinese slowdown. See more here at Bloomberg.
All this aversion to risk saw the Dow fall 1% and European stocks fall 2.1% on Friday night.
This dragged the New Zealand dollar down below 80 USc to be around 79.7 USc in morning trade.
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