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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.

 
FTSE falls as Bernanke remarks offset ECB cash flood

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.

Gold sinks

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.

7 comments so far. Why not have your say?

banjofred

Feb 29, 2012 at 19:20

What a Beranker !!

For two days the shares moving nicely, Gold ticking up and up

Then the beranker says - well not a lot he says that maybe they wil need QE3, but not right now

and everything heads South

Hmm, not impressed

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Ryan McC

Feb 29, 2012 at 22:01

Any experts out there have any idea how low gold will go this time?

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Hotrod

Feb 29, 2012 at 22:21

Just to recap' Have I got this right?

The European community call the LTRO "Trash for Cash"

In American English that would translate as "Cash for Trash"

Or as Bernie Madoff would explain it: A split strike option strategy.

Either way, I'm none the wiser, and will just have to stick to knitting.

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Reckoner

Feb 29, 2012 at 22:35

Che sera sera and it will be ! once the logical nonsense of the past three years of Ponzi scheme "stimulation" finally runs into the buffers. Not a question of if - only when. I don't know when. Who does? Everything going on at present including the interesting comments on this site are just so much noise. Underneath it all another drum beats for those who care to listen.

On the broader political front I wonder when the public - the ordinary Joe Taxpayer everywhere thats you and me - will eventually realise that that the meddling financial sleight of hand "devised" by the very men who caused the ongoing catastrophe in the first place at the behest of an idiot largely uncomprehending politcal class has been nothing less than the biggest transfer of wealth from the relatively poor majority to the very rich minority. The penny will drop. The clang will be deafening and not just on the streets of Athens. When the reckoning finally comes no one and nothing will stop it. No assets will be safe including bricks and mortar. True price discovery will occur. It will be very interesting and God knows,a relief. Lessons will be learnt for the next 50-100 years and then forgotten again, naturally.

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jeffian

Feb 29, 2012 at 22:55

"No assets will be safe including bricks and mortar."

Hmmm! Cash can be inflated to nothing and you can't eat gold but you can live in a property and you can feed yourself from agricultural land. Look at where the City boys are spending their bonuses and those last two feature every time. The thing about real assets is that they may be valued higher of lower in cash terms, but they never disappear in a puff of smoke and you can support yourself from them - can you say that about any other asset class?

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Reckoner

Mar 01, 2012 at 13:10

Yes Jeffian thats a good point and I know only too well that people are piling into real estate and farm land in the UK, especially London so far as the former is concerned, I just don't share their touching faith in that asset class viz Japan - yes their bricks and mortar haven't disappeared but neither have the prices recovered even after 20 + years. I suspect sooner or later as with all bubbles that will burst too. Eventually market fundamentals will out...once the meddling has stopped or no longer has any effect. Already inflation is reducing the value of land in the UK and later on deflation may well consolidate the losses nicely.

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snoekie

Mar 01, 2012 at 16:59

It seems to me that them at the Fed reserve, ECB and BoE must have Alzheimers. They do not remember comparatively recent events in Zimbabwe where the printing presses were allowed to be run almost continuously.

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