February 27, 2021

European Central Bank Intervention Buoys Markets

The dollar, however, continued to weaken following the decision by Standard Poor’s late Friday to lower its top-notch credit rating for the United States.

As European markets opened, the yield on 10-year Spanish bonds fell 83 basis points, while comparable Italian yields fell 79 basis points. News agencies cited traders as saying the E.C.B. was intervening in the secondary market to buy the securities from those two countries.

The E.C.B. declined to comment Monday. But in a statement issued late Sunday after an emergency conference call, the central bank said it would “actively implement” its bond-buying program to address “dysfunctional market segments.” It did not specify which bonds it would buy, but hinted it would be Spain and Italy by welcoming their efforts to restructure their economies and cut spending.

Previously the bond-buying had been limited to bonds from Greece, Portugal and Ireland — the three euro-zone countries that have already received international bailouts. Fears that the bloc’s sovereign debt crisis would spread to the much bigger economies of Italy or Spain had contributed greatly to recent market losses.

Gilles Moëc, an economist in London with Deutsche Bank, said in a report that the central bank’s move was “not a silver bullet,” especially considering the impact of the U.S. downgrade and lingering concerns about the economic recovery there.

Still, he described it as another positive development for European cohesion.

“For all their delays and contorted procedures, the European partners since the beginning of this crisis have always moved, ultimately, in the same direction: creating evermore financial solidarity across its members, and breaking taboo after taboo to do so,” he said.

In morning trading Monday, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 0.8 percent as financial shares rose 5 percent. The FTSE 100 index in London was flat.

The dollar lost ground against other major currencies, with the euro rising to $1.4333 from $1.4282 late Friday in New York. The dollar hit new lows against the Swiss franc, declining to 0.7599 franc from 0.7674 franc and fell to 77.82 yen from 78.40 yen.

Standard Poor’s 500 index futures sharply cut their losses from Asian trading but were still down 0.8 percent, suggesting stocks will fall at the opening on Wall Street.

Asian markets fell Monday, the first trading day since the SP decision.

The Tokyo benchmark Nikkei 225 stock average fell 2.2 percent. The main Sydney market index, the SP/ASX 200, fell 2.9 percent. In Hong Kong, the Hang Seng index fell 2.2 percent, and in Shanghai the composite index closed 3.8 percent lower.

U.S. crude oil futures for September delivery fell 2.2 percent to $84.98 a barrel. Comex gold rose $54.20 to $1,706.00 an ounce.

By the time the rating agency acted late Friday, Wall Street had suffered its worst week since the financial crisis, with the Dow Jones industrial average falling 5.75 percent, a slide punctuated by a 512-point drop on Thursday.

On Wall Street, traders and strategists trekked to their offices on Sunday in scenes reminiscent of the fateful weekend before Lehman Brothers collapsed in 2008. Bank of America Merrill Lynch, Barclays, Credit Suisse and Morgan Stanley all hosted conference calls for anxious investors, and traders plotted strategy for what they expected to be a tumultuous day on Monday.

“Markets have lost confidence in the economic recovery and policy makers. This is increasing the risk of bringing about a self-fulfilling prophecy, with markets driving down the economy,” Robert Subbaraman, chief economist for Asia at Nomura, said in a conference call Monday.

Many analysts stressed, however, that because the Standard Poor’s downgrade had been well telegraphed, it would probably not raise U.S. borrowing costs sharply.

“The downgrade to U.S. debt is unlikely to have any material impact on the U.S. economy or on Asian economies,” analysts at UBS wrote in a note Monday. “It’s important to note that there is no regulatory requirement for U.S. investment institutions to sell long-term U.S. Treasuries if they are not rated AAA, ditto for short-term Treasuries.”

Article source: http://www.nytimes.com/2011/08/09/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

Speak Your Mind