Here's my summary of the key news overnight in 90 seconds at 9 am, including news the US Federal Reserve released minutes from its last monetary policy committee meeting showing the central bank of the world's largest economy divided over whether to print more money to stimulate the economy.
Minutes from the last FOMC (Federal Open Markets Committee) show a few members in favour of a third round of quantitative easing (QE III) or money printing to buy long term bonds to lower long term interest rates, but that others thought it was risky and possibly ineffective. The sense of division and uncertainty within the US Federal Reserve disappointed investors hoping for extra stimulus to restart growth in the global economy. See more here at Bloomberg.
The Dow fell 0.4% in late trade as investors took risk off the table. Gold prices fell and interest rates on US bonds fell to record low levels. The New Zealand dollar, which tends to rise and fall with appetites for riskier assets on global markets, fell against the US dollar to 79.3 USc this morning, having earlier touched 80 USc in overnight trade. A lack of fresh US$ money printing also strengthens the US dollar.
Meanwhile, the pain is getting worse in Spain. Tens of thousands of protestors and miners clashed with baton-wielding police clashed in Madrid as the Spanish Prime Minister Mariano Rajoy announced a fourth austerity plan in 6 months to cut Spain's spiralling budget deficit by 65 billion euros. The new plan includes cuts in unemployment payments, public sector job losses and an increase in Spain's GST rate to 21% from 18%.
Rajoy said the new plan was necessary for Spain to avoid having to ask Europe for a bailout. See more here at Reuters.
The problem for Spain and other economies on the periphery of the Euro zone is that more government spending and taxation austerity is simply driving their economies deeper into recession, thus increasing the weight of the debt they're trying to get away from.
Meanwhile, Spain also announced that Mum and Dad investors who bought preference shares and subordinated bonds in Spanish savings banks will have to take haircuts along with other professional investors. This may add to the social and political pain hammering Spain's government. See more here at FT.com.
All this worry about the euro zone and a lack of QE III saw the euro weaken to a 2 year low of US$1.22. The New Zealand dollar also strengthened to a fresh record high of over 65.2 euro cents.