Here's my summary of the key news overnight in 90 seconds at 9 am, including news the European Central Bank (ECB) appears set to decide tonight to unveil it's 'Big Bazooka' plan to buy unlimited amounts of bonds from those countries in the Euro-zone that ask for a bailout.
Bloomberg reported the ECB is likely to reveal the blueprint called 'Monetary Outright Transactions' at its meeting later on Thursday night New Zealand time.
Under the plan, the ECB would buy unlimited amounts of shorter term bonds from the likes of Italy and Spain to reduce their unsustainably high bond yields and therefore reduce much of the financial stress inside the Euro-zone's banking system and economy.
However, the ECB is also likely to say it will 'sterilise' the money printed to buy these bonds. That means that after it has bought the bonds it would then issue short term bills to banks to mop up the cash injected into the monetary system.
The risk is that much of the money injected into the economy by the European Central Bank will simply be recycled back into its coffers, meaning the bond buying succeeds only in pushing down interest rates for troubled governments and helping boost the profits and balance sheets of the banks involved. Similar bouts of sterilised bond buying in America has had only limited success in boosting economic activity and employment, although these rounds of 'Quantitative Easings' did stabilise the financial system and bank profits.
Eurostoxx were broadly flat ahead of the big announcement, while US stocks were also mostly flat. See more here at Reuters.
Meanwhile, GDP figures released yesterday showed Australia's economic growth slowed in the June quarter to 0.6% from 1.4% the previous quarter as China's hard economic landing starts to flow through into lower iron ore and coal prices, and the subsequent slowdown in mining investment.
Economists now expect the Reserve Bank of Australia will have to cut its Official Cash Rate from 3.5% in coming months. See more here at Bloomberg.
This would happen at the same time the Reserve Bank of New Zealand has its Official Cash Rate on hold at 2.5%, making our currency relatively more attractive. ANZ Economist Cameron Bagrie yesterday shifted his view on when the next OCR hike would come to 2014 from 2013, arguing an Australian slowdown and a likely appreciation of the New Zealand dollar vs the Australian dollar were factors. See more here in our article.
The New Zealand dollar strengthened to a two month high of over 78 Australian cents overnight. It was steady around 79.5 US cents.
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