Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the US Federal Reserve announced this morning it would 'twist' its portfolio of bonds to sell short term bonds and buy US$400 billion longer term bonds in an effort to lower long term interest rates.
However, the US Federal Reserve also warned of a deteriorating economic outlook and stopped short of any sort of third round of quantitative easing QE III or money printing.
See the full US Federal Reserve statement here on the 'Twist' strategy and the economic outlook.
This is the key quote on the economy: "There are significant downside risks to the economic outlook, including strains in global financial markets." See more analysis here from Reuters on the Fed's announcement.
Here's its full Fed release on the plan to sell short term bonds and buy long term bonds. It will also reinvest money from maturing mortgage bonds into more mortgage bonds, effectively leaving money printed in 2009 out in the market. See more on the announcement here at Bloomberg.
The problem for the US economy is that 30 year mortgage rates are already at record lows of 4% yet households are reluctant to borrow and spending, either because they are already heavily in debt and/or unemployed, or they worry about still-falling house prices.
There were three dissenters in the US Federal Reserve's Open Markets Committee, the same as at the last meeting. This underlined just how divided America's policy elite is on the way forward to stimulate the world's largest economy. It also reminded investors how apparently ineffective the first two rounds of quantitative easing have been.
US Treasury bonds rallied sharply, which pushed 10 year bond yields to record lows of 1.85% and pushed the 30 year Treasury bond yield down to just under 3%. See more here on the Treasuries rally at Bloomberg.
The Dow fell 3% in the last hour of trade to close down 283 points, having been slightly in the black earlier in the day. See more here at Bloomberg.
The New Zealand dollar slumped more than 1.5 USc in frantic morning trade to briefly dip below 80 USc around 8 am. It fell to an intraday low of 79.93 USc and was a tad above 80 USc around 8.15 am.
It was last under 80 USc on May 26.
The New Zealand dollar tends to move dramatically in tune with the Dow as it is seen as currency most exposed to movements in the global economic outlook and commodity prices.
Elsewhere, the Bank of England signaled it was likely to expand its current programme of 200 billion pounds of quantitative easing in its own version of QE II. This is despite inflation running at over 4%. See more here at Reuters.
(Updated with links, details, chart below)
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