While you were sleeping: ECB steps up to bat

Thursday 6th September 2012

Global shares have paused as investors await confirmation from the ECB on its bond-buying program with hope that the bank will act firmly enough to help put the EU's credit crisis in check.

That optimism was offset in large part by FedEx, which is struggling with the global slowdown. The world's second-largest delivery company late yesterday slashed its profit outlook for the current quarter. Its shares were last down 1.9 percent.

"While FedEx is only one company, it's one whose warning is indicative of the global economic slowdown we're dealing with," Leo Grohowski, chief information officer at BNY Mellon Wealth Management in New York, told Reuters.

Investors have been looking increasingly to policy makers in the world's largest economies for help and it looks like the European Central Bank might finally detail the extent of their helping tomorrow. ECB President Mario Draghi will announce unlimited sterilised bond buying to stem the euro zone's debt crisis, Bloomberg News reported, citing two central bank officials.

Under Draghi's proposed blueprint, which may be called "Monetary Outright Transactions," the ECB would refrain from setting a public cap on yields, according to two central bank officials, and a third official, who spoke to Bloomberg on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target short-dated maturities of up to about three years, two of the people told Bloomberg.

The euro drew heart from the report, as the currency rose 0.3 percent to US$1.2598 at 2.15pm New York time, after earlier sliding as much as 0.5 percent. The euro advanced 0.2 percent to 98.74 yen.

Wall Street was mixed, as were equities in Europe. In late afternoon trading in New York, the Standard & Poor's 500 slipped 0.01 percent, while the Nasdaq Composite Index was down 0.05 percent. The Dow Jones Industrial Average rose 0.12 percent.

Europe's Stoxx 600 Index barely budged, inching less than 0.1 percent higher by the close of trading.

Spain is set to sell as much as 3.5 billion euros of securities due between 2014 and 2016 tomorrow.

"There's pressure at the front-end of the Spanish curve before the short-dated debt sales tomorrow," Richard McGuire, a fixed-income strategist at Rabobank International in London, told Bloomberg. "They rallied so strongly on the ECB expectations."

Some pressure also came off Facebook shares, which recovered about 5 percent from a record low, after the company said it won't sell shares to help pay for a tax bill of about US$2 billion.

BusinessDesk.co.nz

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