14.09.2012 The New US Plan To Stimulate The Economy Boosted Global Markets

The news about the US Federal Reserve System (FRS) plan encouraged the growth of markets in the United States of America, Europe and Asia.

Under the new program, the FRS will focus on buying up mortgage-backed securities for real estate development and will actively restrain interest rates until 2015. The purpose of the plan adopted is to reduce the credit costs for businesses and individuals.

Federal Reserve Chairman Ben Bernanke announced the unexpectedly aggressive QE3, pointing out serious concerns about unemployment (unexpectedly weak data on initial applications for unemployment benefits was released yesterday before Bernanke speech): the US Federal Reserve System extended the rate near zero until the middle of 2015, yet stated about a pace of $40 billion in purchases each month until the economy improved. The Federal Reserve plans to buy mortgage bonds until the economy begins to show steady growth. The US Loan rate remains at 0.25%.

The US stock markets started to grow after this statement. The Dow Jones rose by 1.55%. Following the US, the growth started at sites in Asia. Hong Kong Stock Exchange index rose by 2.7%, while Japan's Nikkei rose by 1.8%. In the UK, Germany and France trading opened growth of the major indices by an average of 1.5% - following the growth of stock indices at sites in Asia. The banking sector securities broke forward. For example, RBS bank shares rose by 3.8% and Barclays shares rose by 4.5%. Other European banks shares showed similar results. Commodity prices and oil prices also soared. Inflation hit the country and the dollar fell against all currencies. Euro / USD broke through the level of 1.30 and is now trading at 1.30400. USD / Yen is trading at 77.63. Gold rose was to the highest level in the last 6 months, and now is at 1765. Brent is trading at 116,5 USD / barrel.

Analysts noted that investors were encouraged by the news that the FRS plan is not limited in time, and assistance will be provided till the stable economic growth starts. "They say the cornucopia will not be closed. Assistance will be provided to the economy as much as it is necessary", - says Tony Fratto, the managing partner of Hamilton Place Strategies.

The analytical note of the British bank HSBC says that the FRS "is trying to convince the market that they can count on low interest rates and favorable monetary policy for a long time. One should not think that the policy will change with the news of a modest increase in GDP and a small improvement in the labor market."

According to Dmitry Chernavski, the financial advisor, American decision followed after a similar solution in Europe. One of the reasons is the desire to escape the pressures on the dollar and to keep its possible strengthening, which in turn may deteriorate the trade balance with European countries", - says Dmitry Chernavski. At the same time, it is not worth expecting quick results from the policy, both in the US and Europe", - says Dmitry Chernavski.

Steve Jacobsen, Chief Economist at Saxo bank is less optimistic about it. "This week, China announced USD 100 billion worth of fiscal stimulus Europe agreed to yet another rescue 'mechanism' and the US will print more money. What is this - 2008 again? Let us remember Einstein's immortal words: "insanity is doing the same thing over and over and expecting different results." ... low yields and monetary policy ceased to have effect two years ago. Today, perhaps, is the day when after the rally low rates no longer have influence on stocks and riskier assets. There is only one cheap asset in the world - money. This is an alarming signal. Every time such situation occurred in the past, it ended in a bubble and unfortunate consequences, said Steve Jacobsen.


Categories: Foreign Government

Tags: Ben Bernanke, Dmitry Chernavski, FRS

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