By: Sara Patterson
It’s the move everyone’s been talking about – yesterday’s Federal Reserve announcement that it will reduce borrowing costs in order to hasten economic growth. Equally newsworthy is the downgrade by Moody’s of 3 top US banks – Bank of America, Citigroup and Wells Fargo & Co. Taken alone, each of these announcements is enough to wreak havoc on the American economy. Taken together, these developments have already had a dramatic impact on trading during today’s London session, and the market is expected to open lower in the New York session.
The Fed will purchase $400 billion of long-term debt while selling shorter-term securities, in an effort to jump start the nation’s struggling economy. The Fed’s debt is currently more than $1.6 trillion. Stocks and commodities prices fell as a result of this move, with treasury 10-year yields dropping to a record low. This slide is expected to continue into the NY trading session today. Treasury bonds, however, surged with the expectation that the central bank would purchase long-term debt.
The downgrade of Italian banks Intesa Sanpoalo, Mediobanca SpA and others did nothing to help the Euro, which faced losses yet again today. Stock prices in the European markets also plummeted further, reaching a 26-month low following bleak reports from both the US and Chinese governments as well as continued dismal news from within the region, especially as related to credit default swaps in France and Germany.