Central bankers are racing to shield their economies from fiscal tightening and lopsided currency swings that threaten a new global recession. In the 72 hours after a Group of Seven conference call on Sunday, the Federal Reserve pledged to keep interest rates near zero through at least mid-2013, the European Central Bank intervened in bond markets and the Bank of England indicated it’s ready to add more stimulus if needed. Japan signalled renewed concern about the yen and Switzerland yesterday stepped up its fight to curb an “overvalued” franc.
THE US is poised to run a budget deficit of $1.6 trillion and S&P removed the nation’s AAA rating, but investors are lending the government money at record low rates proving Federal Reserve Chairman Ben S. Bernanke matters more than Standard & Poor’s. Five days after the first downgrade to AA+, the Treasury sold $24 billion of 10-year notes to yield 2.14%. When the U.S. was running budget surpluses from 1998 through 2001, Treasuries of similar maturity yielded an average of 5.48%.
FRANCE’S top credit grade was affirmed by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings as relative yields on the nation’s debt climb on concern that Europe’s sovereign debt crisis is intensifying.
THE FTSE 100 almost closed back below the 5,000-point mark yesterday after giving up a short-lived rally.
German stocks declined the most since 2008, with the DAX sinking by 5.1% during an 11th day of declines, the longest losing streak since 1978. The gauge has tumbled 26% since the year’s high on May 2nd.
US STOCK futures rose 1.5% overnight, limiting Asian share losses, though focus will shift quickly to how European markets hold up to a sovereign debt crisis that has spread to its banking system.
ASIAN markets opened sharply lower, following another day of heavy falls in the US and Europe. However, bargain hunters made an appearance shortly after the open and a buying spree helped markets pare initial losses, which is expected to feed through and lift European shares from a two-year closing low.
THE SWISS National Bank announced additional measures to counter a new jump in the safe-haven Swiss franc yesterday, including increasing liquidity to the money market and conducting foreign exchange swap transactions. The US dollar has plummeted against the Swiss franc in recent weeks, tumbling from 85 cents in July to close as 72.6 cents yesterday.
BRENT crude fell briefly by more than a dollar to an intraday low of $105 a barrel on demand worries. Brent has fallen around 4% since ratings agency Standard & Poor’s cut the top-tier credit rating of the US on Friday.
COPPER rose after another equities selloff overnight, as investors picked up commodities, spurred by a stronger yuan and China’s strong July trade figures. Spot gold hit an all-time high of $1,813.79 an ounce, while US gold also hit a record of $1,817.60.