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FTSE falls as Bernanke remarks offset ECB cash flood
Index falls and gold slumps despite a fresh offering of cheap cash from the ECB as Fed chairman gives no sign of more QE in the US.
Britain’s FTSE 100 fell on Wednesday, reversing early gains, as hints that a third round of monetary stimulus would not be forthcoming in the US offset a fresh offering of cheap three-year funds by the European Central Bank.
The UK index of blue-chip shares dropped 0.95%, or 56 points, to 5,872 – down from a day high of 5,928 – and the All Share index faded 0.9%, or 28 points, to 3,044. See the FTSE’s performance and the index’s top winners and losers.
Ben Bernanke, Fed chairman, earlier gave no sign that the US central bank would unleash a third bout of monetary stimulus – known as quantitative easing, or QE – citing ‘somewhat different signals’ from the economy.
‘Even though the ECB and the Bank of England are still boosting the size of their balance sheets with additional long-term loans and asset purchases, Bernanke offered no hint that the Fed was considering following suit with a QE3,’ said Paul Ashworth, chief US economist at Capital Economics.
Following the remarks, gold slumped 3% to $1,730 an ounce, as the metal lost some of its allure as a hedge against inflation and a weakening dollar. The dollar index, which tracks the greenback’s performance against a basket of major currencies, added 0.41% to 78.59.
Wall Street also suffered: the Dow Jones Industrial Average lost 0.4% to 12,945, the Standard & Poor's 500 index gave up 0.51% to 1,365, and the Nasdaq Composite index weakened 0.17% to 2,982.
‘Trash for Cash’
Across the Atlantic, stock markets in Europe gave up gains chalked up after banks gobbled up €530 billion (£444 billion) at the ECB’s second three-year, longer-term refinancing operation, known as the LTRO.
Germany’s DAX index slid 0.46% to 6,856, France's CAC 40 index eased 0.04% to 3,452, and the FTSEurofirst 300 index of top European shares was 0.08% lower at 1,075.
The ECB’s first infusion of the cheap loans – for which it charges just 1% – before Christmas is credited with helping spur the recent rally in risk assets, along with better-than-expected US economic data.
‘The scale of the LTRO is less than we feared it might be, but it’s triggered some fervid drumming by the rally monkey as the market persuades itself higher on the imagined liquidity flooding the market,’ said Bill Blain, senior director at broker NewEdge. ‘Saner minds will quickly realize that unlimited ECB “Trash for Cash” money is not a recipe for long term stability.’
The euro subsequently shed 0.76% versus the dollar to $1.336. However, the yield, or implied interest rate, on Italian 10-year government bonds dropped 27 basis points to hit a fresh five-month low of 5.19%, as domestic banks were expected to use their new cash to stock up on the country’s debt.
ITV (ITV.L) topped the leader board on the FTSE 100, adding 5.5p to 86p, on the back of better-than-forecast results from the broadcaster.
Essar Energy (ESSR.L) was the index’s biggest loser, shedding 8.5p to 104.9p, after Credit Suisse cut its recommendation for the stock to ‘neutral’ from ‘outperform’ and its target price to 155p from 435p.
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