GLOBAL MARKETS-Stocks slide as Fed's "Twist" fails to stir buyers
SINGAPORE, Sept 22 (Reuters) - Asian stocks fell on Thursday, following a slide on Wall Street, as investors took fright at a warning from the Federal Reserve that the United States faced a grim economic outlook with "significant downside risks".
The dollar gained on the prospect of higher short-term interest rates after the Fed said it would sell $400 billion of short-term Treasury bonds to buy longer-dated debt in a widely predicted move known as "Operation Twist", aimed at stimulating the economy by forcing down long-term borrowing costs.
Dollar Gains Most in Two Weeks Versus Yen on Fed Bond Plan; Aussie Slides (Bloomberg)
The dollar rose the most in two weeks against the yen after the Federal Reserve acted to lower only long-term borrowing costs and on concern the Bank of Japan may act to stem gains in the nation’s currency. The Dollar Index rose to a seven-month high after the Federal Open Market Committee said it will shift Treasury holdings to longer-term securities. The 17-nation euro rallied versus the yen as Greece said it will accelerate budget cuts to keep emergency loans flowing. New Zealand’s dollar fell to a four-month low after data showed economic growth almost stalled. Australia’s dollar sank below parity with the greenback after a survey said China’s manufacturing may slow. “The reaction to the FOMC was risk off as the Fed was very pessimistic about the U.S. economy, and that’s pushed down riskier assets in general,” said Masafumi Yamamoto, chief currency strategist at Barclays Bank Plc in Tokyo. “Dollar strength across the board pushed up dollar-yen as well.”
Japanese Stocks Decline on Growing Signs of Banking System Instability (Bloomberg)
Japanese stocks fell amid signs of growing instability in the global financial system after the Federal Reserve said there are “significant downside risks” to the U.S. growth outlook and Europe’s risk watchdog said threats to the region’s banks have increased “considerably.” Mitsubishi UFJ Financial Group Inc. (8306) led declines among Japan’s biggest lenders on growing international turmoil and after BNP Paribas SA said the country’s banking industry is “deteriorating.” Honda Motor Co., Japan’s second-largest carmaker, slid 4.1 percent. Softbank Corp. (9984) plunged 11 percent after a report the carrier will lose its position as the exclusive provider of Apple Inc.’s iPhone in Japan.
The Nikkei 225 (NKY) Stock Average lost 1.6 percent to 8,598.32 at the 11 a.m. trading break in Tokyo after investors were disappointed by a Fed plan to support growth in the world’s biggest economy by buying $400 billion of longer-term debt. The broader Topix index dropped 1.7 percent to 744.48. Japan’s stock market will be closed tomorrow for a public holiday.
Fed Will Lengthen Maturity of Securities (Bloomberg)
The Federal Reserve will replace $400 billion of short-term debt in its portfolio with longer- term Treasuries in an effort to reduce borrowing costs further and counter rising risks of a recession. The central bank will buy securities with maturities of six to 30 years through June while selling an equal amount of debt maturing in three years or less, the Federal Open Market Committee said today in Washington after a two-day meeting. The action “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the FOMC said. Chairman Ben S. Bernanke expanded use of unconventional monetary tools for a second straight meeting after job gains stalled and the government lowered its estimate of second- quarter growth. Yields on 30-year Treasuries fell below 3 percent for the first time since 2009 and U.S. stocks had their biggest drop in a month on the Fed’s plan, dubbed “Operation Twist” after a similar Fed action in 1961.
Brent crude falls more than $1 on grim econ outlook
SINGAPORE, Sept 22 (Reuters) - Brent crude futures fell more than $1 on concern that measures announced by the U.S. Federal Reserve may not be enough to jump-start an
economy the bank said faces significant downside risks.
"The sell-off appears to be the unwinding of positioning ahead of an anticipated announcement of further liquidity addition, despite clear signalling from the Fed that conditions are not right for this kind of stimulus," Michael McCarthy, chief market strategist at CMC markets, said in a report.
NYMEX-Natural gas down midday after early contract low
NEW YORK, Sept 21 (Reuters) - U.S. natural gas futures remained lower midday Wednesday, with the front-month October contract again pressured to a new contract low and 6-1/2 month low by milder autumn weather that has slowed overall demand.
"We hit a new low today which is not a good sign. (Milder) weather has come into play, and we keep adding (gas drilling) rigs which is not supportive," a Houston-based trader said.
COMMODITIES-Futures fall broadly after Fed fails to reassure
NEW YORK, Sept 21 (Reuters) - Commodities tumbled on Wednesday after the U.S. Federal Reserve's widely expected plan to buy $400 billion in long-term debt failed to convince investors that "operation twist" would be enough to revive growth.
"People were expecting there was going to be some form of stimulus that would engender some kind of growth," said Jason Schenker, president of Prestige Economics in Austin, Texas.
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