Morning papers: Fed joins stimulus party as trade slumps
The morning papers brought to you by Investment Adviser: Friday August 24 2012.
All three major blocs of the world economy have shifted gears dramatically over the last month, preparing a fresh blast of stimulus to combat the sharpest contraction in global trade since the 2008-09 crisis, reports The Telegraph.
The US Federal Reserve appears poised for a third round of quantitative easing as soon as early September, joining Europe and China in concerted global stimulus.
The Fed’s latest minutes show broad support for fresh bond purchases – probably mortgage bonds – unless signs of “substantial and sustainable strengthening” emerge soon.
Shanghai stocks slump to three-year low
The Chinese stock market has slumped to levels last seen near the depths of the global financial crisis as fears build about waning economic growth and uncertainty reigns over the prospect for central bank support from Beijing and Washington, the Financial Times reports.
Weakness in the Shanghai Composite index, which on Friday fell 1 per cent to its lowest close since March 2009, is reflected in a risk averse mood across asset classes.
The FTSE All-World equity index is down 0.5 per cent as Europe’s FTSE Eurofirst 300 slips 0.2 per cent. The FTSE Asia Pacific index is losing 1.3 per cent, also pressured by 1.2 per cent falls for both Tokyo and Hong Kong.
A 0.8 per cent fall by Wall Street on Thursday has not helped sentiment in Asia, and futures suggest the S&P 500 will dip another 0.1 per cent when New York opens for the final session of the week.
Athens and Berlin in spat over funds
Leaders in Athens and Berlin wrangled publicly over how to deal with Greece’s plea for further assistance as fears of a renewed eurozone recession mounted yesterday, reports the Financial Times.
An index of business activity in the single currency area showed a seventh consecutive monthly contraction and an accelerating decline in output from Germany, the main engine of eurozone growth.
Bankruptcy fears cast cloud over US municipal bonds
The resilience of markets against a worrying economic backdrop has resonated strongly this year, particularly in the $4trn (£2.5trn) US municipal debt market, reports the Financial Times.
Three cities in California filed for bankruptcy in the span of a few weeks this summer. Moody’s, the rating agency, came out with a report recently that warned of a potential shift in the willingness to pay bondholders.
Republicans eye return to gold standard
The gold standard has returned to mainstream US politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy, reports the Financial Times.
Drafts of the party platform, which it will adopt at a convention in Tampa Bay, Florida, next week, call for an audit of Federal Reserve monetary policy and a commission to look at restoring the link between the dollar and gold.