Global markets Friday: Bernanke ahead, European stocks take hit

Reuters, Friday 26 Aug 2011

Markets are playing down chances of a major shift towards further economic stimulus from US Federal Reserve chairman Ben Bernanke later Friday

Both European shares and the dollar fell on Friday. Markets have been playing down the chances of a major shift towards a greater economic stimulus from the US Federal Reserve on the occasion of chairman Ben Bernanke speaking later in the day at a Fed conference in Jackon Hole, Wyoming.

A year ago in the same place, Bernanke opened the door to a second round of quantitative easing. Although there was some belief that he would announce a third round of asset buying this year, he is not expected to come up with a fresh dose of shock treatment for the ailing US economy.Instead he is expected to concede his disappointment over the pace of growth, possibly downgrade his outlook, and explain what medicines may be left in the Fed's cabinet for fortifying the economy.

Uncertainty about what is to come has put many investors in a cautious frame of mind."With many traders feeling like we're standing on the edge looking down into a global recession, Bernanke has the ability to significantly elate or deflate the markets today," said Jonathan Sudaria, dealer at Capital Spreads.

World stocks as measured by MSCI, on the other hand, were flat.The pan-European FTS Eurofirst 300 lost 0.9 per cent, although the extension of a ban on short selling of financial shares and related derivatives was seen supporting hard-pressed banking stocks.Earlier, Japan's Nikkei closed up 0.3 percent.

 

WAITING FOR BEN

The dollar has eased as investors shuffled positions ahead of the Wyoming speech. Some traders expected the greenback to stage a short-term bounce if Bernanke does not signal further monetary stimulus.The Euro edged higher against the dollar while higher-yielding currencies such as the Australian and New Zealand dollars also advanced.

"If Bernanke signals he is likely to be less accommodative about providing liquidity, we could see the dollar recover and depending on how Wall Street reacts to that, we could see some flows into the greenback," said Roberto Mialich, FX strategist at Unicredit."On the other hand, if he signals that he is ready to act and provide more support, then the dollar will weaken. If he says he is ready to act but not right now, I don't think the markets will be too disappointed."

Core Euro zone government bonds were also flat.

 

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