with thanks to FT.com
By Chris Giles in Davos, Ralph Atkins in Frankfurt and Paul J Davies in London
Published: January 23 2008 19:39 | Last updated: January 23 2008 20:40
European financial markets, business leaders and economists on Wednesday took a pessimistic view of the likely effect of the dramatic US interest rate cut.
There was also a growing sense of a split between the continent’s central banks and the US Federal Reserve as Jean-Claude Trichet, president of the European Central Bank, made clear to the European Parliament in Brussels that it would not bow easily to pressure for eurozone interest rate cuts. On Tuesday night Mervyn King, governor of the Bank of England, had talked down expectations of substantial rate cuts in the UK.
EDITOR’S CHOICE
Overview: Fed’s cut fails to reassure nervous investors - Jan-23Short View: Bear market? - Jan-23Lex: Global interest rates - Jan-23Video interview: JPMorgan’s Jing Ulrich on the Fed rate cut’s effect on China - Jan-23Wall Street tumbles on bear market fears - Jan-23Buyers venture back into Asian stocks - Jan-23Although Asian markets, which had closed before the 75 basis points cut, reacted positively, in Europe and initially in the US the outlook was bleak.
In London the FTSE 100 lost most of what it had recovered the previous day immediately after the Fed’s move. The index closed down 130.8 points, or 2.3 per cent, at 5609.3. The FTSE Eurofirst 300 closed down 41.97 or 3.2 per cent, at 1262.40. Germany’s Xetra Dax index lost 4.88 per cent .
In midday trading, the S&P 500 was heading for its sixth straight day of losses at midday in New York after falling 25.62, or almost 2 per cent, to 1,284.88. But it recovered in late trading, moving up by 0.5 per cent, or 10 points, on the day in the hour ahead of the close, driven by a rally in financial stocks.
In the US Treasury market, bond prices fell as equities recovered, curbing an earlier move by investors towards safe havens. Before the turnround, the 30-year Treasury yield hit 4.101 per cent, its lowest ever level. In spite of Mr Trichet’s hawkish tone, markets are still pricing in ECB rate cuts this year.
The earlier sell-off mainly reflected worries over the prospects of the US slipping into a recession, but there are also concerns that central banks will not have the ability to support their economies whatever they do.
Professor Joseph Stiglitz of Columbia University, said economic forces meant the cut would be as effective as “pushing on a piece of string”.
The Fed’s gambit also drew criticism. Stephen Roach of Morgan Stanley said in his FT.com blog from the World Economic Forum annual meeting in Davos that the Fed’s policy was “a dangerous and reckless and irresponsible way to run the world economy”.
Others felt the action was too little and too late. George Soros, the hedge fund manager, said at the World Economic Forum in Davos that the Fed was “well behind the curve” and he believed it would be hard for the US and UK to avoid recession.
John Studzinski, head of US private equity firm Blackstone’s advisory business, also in Davos, said: “Until the markets see a lot more leadership on a proactive basis rather than a reactive basis, you are going to continue to see this great anxiety.”
The reactions were not entirely negative. Larry Fink, chief executive of BlackRock, the US’s largest publicly traded fund management group, told the FT the markets were “neurotic” and added: “The Fed’s move was appropriate – it wasn’t a statement of panic. The Fed cuts will do the job but it will take time.”
Copyright The Financial Times Limited 2008
By Chris Giles in Davos, Ralph Atkins in Frankfurt and Paul J Davies in London
Published: January 23 2008 19:39 | Last updated: January 23 2008 20:40
European financial markets, business leaders and economists on Wednesday took a pessimistic view of the likely effect of the dramatic US interest rate cut.
There was also a growing sense of a split between the continent’s central banks and the US Federal Reserve as Jean-Claude Trichet, president of the European Central Bank, made clear to the European Parliament in Brussels that it would not bow easily to pressure for eurozone interest rate cuts. On Tuesday night Mervyn King, governor of the Bank of England, had talked down expectations of substantial rate cuts in the UK.
EDITOR’S CHOICE
Overview: Fed’s cut fails to reassure nervous investors - Jan-23Short View: Bear market? - Jan-23Lex: Global interest rates - Jan-23Video interview: JPMorgan’s Jing Ulrich on the Fed rate cut’s effect on China - Jan-23Wall Street tumbles on bear market fears - Jan-23Buyers venture back into Asian stocks - Jan-23Although Asian markets, which had closed before the 75 basis points cut, reacted positively, in Europe and initially in the US the outlook was bleak.
In London the FTSE 100 lost most of what it had recovered the previous day immediately after the Fed’s move. The index closed down 130.8 points, or 2.3 per cent, at 5609.3. The FTSE Eurofirst 300 closed down 41.97 or 3.2 per cent, at 1262.40. Germany’s Xetra Dax index lost 4.88 per cent .
In midday trading, the S&P 500 was heading for its sixth straight day of losses at midday in New York after falling 25.62, or almost 2 per cent, to 1,284.88. But it recovered in late trading, moving up by 0.5 per cent, or 10 points, on the day in the hour ahead of the close, driven by a rally in financial stocks.
In the US Treasury market, bond prices fell as equities recovered, curbing an earlier move by investors towards safe havens. Before the turnround, the 30-year Treasury yield hit 4.101 per cent, its lowest ever level. In spite of Mr Trichet’s hawkish tone, markets are still pricing in ECB rate cuts this year.
The earlier sell-off mainly reflected worries over the prospects of the US slipping into a recession, but there are also concerns that central banks will not have the ability to support their economies whatever they do.
Professor Joseph Stiglitz of Columbia University, said economic forces meant the cut would be as effective as “pushing on a piece of string”.
The Fed’s gambit also drew criticism. Stephen Roach of Morgan Stanley said in his FT.com blog from the World Economic Forum annual meeting in Davos that the Fed’s policy was “a dangerous and reckless and irresponsible way to run the world economy”.
Others felt the action was too little and too late. George Soros, the hedge fund manager, said at the World Economic Forum in Davos that the Fed was “well behind the curve” and he believed it would be hard for the US and UK to avoid recession.
John Studzinski, head of US private equity firm Blackstone’s advisory business, also in Davos, said: “Until the markets see a lot more leadership on a proactive basis rather than a reactive basis, you are going to continue to see this great anxiety.”
The reactions were not entirely negative. Larry Fink, chief executive of BlackRock, the US’s largest publicly traded fund management group, told the FT the markets were “neurotic” and added: “The Fed’s move was appropriate – it wasn’t a statement of panic. The Fed cuts will do the job but it will take time.”
Copyright The Financial Times Limited 2008
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