US Stocks Fall Following Bernanke, Minutes
Central Banks Make Moves to Shore up Credit and Money Markets; US Stocks Fall Following Bernanke, Minutes
AUS RBA Slashes Rates by 1% to 6% in Bold Move
The RBA slashed its benchmark interest rate by a full 1 percent at the conclusion of its meeting. It was the biggest cut since 1992. The move can be a precursor for moves by other central banks as they try and get a handle on the widening credit crisis. Asian stocks, especially in Australia, rebounded on the news. The RBA is trying to bring down borrowing cost as its economy has already stalled, and now financial turmoil has increased the likelihood of a more pronounced downturn.
JPN Bank of Japan Holds Rates Steady
The bank of Japan held rates at 0.50%. In his conference, the Bank’s Governor played down the chances that central banks will coordinate a concerted effort to lower rates together.
AUD/JPY - Despite Sharp Cut, Aussie Sticks to Smaller Range
After a steep fall in yesterday’s session the Aussie-Yen pair stayed within a smaller range today. It dipped following the RBA interest rate announcement, recovered, but was mixed throughout the trading session. Trading activity was similar for the Aussie-Dollar pair as well.
UK Manufacturing Decreases 0.4%, Worries Over Recession
In the UK, manufacturing production decreased 0.4% in August, missing economists’ expectations of a 0.2% decline. It’s the 6th straight month that production was negative, the worst streak in nearly 3 decades. Production was down 1.9% from a year earlier, the weakest level since 2003.
GBP/JPY - Volatile Session Shows Consolidation
The Pound-Yen pair found support near 176 today, and rose in favor of the Pound in a volatile session. The pair tested the 182 level after a 600 pip rally, but then retreated below 179 in afternoon NY trading. There was news that the British government may invest at least 45 billion pounds in banks including Royal Bank of Scotland and Barclays to bolster capital. The two banks denied any request, but the episode shows that the UK central bank is trying to be more pro-active during this crisis.
GER Factory Orders Rise in August
In Germany, manufacturing saw a boost in orders in August. On the month factory orders rose 3.6%, handily beating expectations. On the year however, orders were down 7.6%, a bigger decline than expected. The 3.6% increase was the first time orders were positive in the last nine months. Despite the positive headline number, the ministry expects orders to fall going forward.
Central Banks Take Steps to Stem Credit Crisis
Central banks around the world pumped $480 billion into money markets in an attempt to staunch the worsening financial crisis in today’s session. The ECB lent banks roughly 275 billion euros, while the central banks of England, Japan, Australia and Switzerland added smaller amounts. The Federal Reserve set a floor under its main interest rate, effectively lowering the overnight lending rate by about 0.75% to 1.25%. Also, the Fed announced it will create a special fund to purchase US commercial paper - all in an attempt to unclog the credit pipeline.
EUR/USD - Euro Climbs From Support at 1.3470, But Turned Back
The Euro-Dollar pair rose for most of the session, but turned back once it climbed above the 1.37 level. This may be indicative of last week’s level of support now turning into a point of resistance. European stocks held it together overnight finishing slightly down after being positive late in the session. Oil prices were up as well.
US Bernanke and FOMC Paint Gloomy Picture of Economy, Rate Cut Coming
In the US, Bernanke opened the door for a possible interest rate cut in a speech today, saying that the worsening condition of the US economy and the outlook going forward warrants officials to re-think their neutral stance towards monetary policy. FOMC minutes also supported Bernanke’s comments as the risks to growth have increased as a result of the recent developments in the financial system.
USD/JPY - Dollar Stems Bleeding, but Dow Jones Falls in Afternoon
The Dollar-Yen was up compared to yesterday’s low. US stocks were bolstered by Bernanke’s comments and the Fed’s moves, but that rally faded quickly and stocks fell in the afternoon. Stocks are now down for the 5th straight session with the Dow dropping more than 300 points today. In the afternoon, the FOMC minutes showed a very negative outlook further pressuring US equities and the greenback.
Tonight’s and Overnight’s Releases
Tonight, both the UK and Australia release data on consumer confidence. Overnight we get the Japanese Eco Watchers Survey, UK shop prices and Germany’s industrial production. The UK is also scheduled to post housing prices, though that is subject to change.
Tomorrow’s Releases
Tomorrow, Canada posts housing starts, the US releases pending home sales, and the UK reveals its leading index.
Capital Market Services, L.L.C.
www.cmsfx.com
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