While you were sleeping: Fed minutes; Libor, VIX slip, greenback falls

Thursday 21st May 2009

The Federal Open Market Committee considered increasing purchases of Treasury bonds to revive the US economy though policy makers opted to hold off to gauge the impact of existing stimulus efforts, minutes of the Fed’s last policy meeting show.

The US dollar weakened after the minutes were released. Buying more Treasuries would likely debase the world’s reserve currency. The greenback also fell after Treasury Secretary Timothy Geithner said government bailout efforts were “starting to heal” the financial system.

According to the minutes, some Fed policy makers “noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery.”

The Fed held its target interest rate in a range of zero to 0.25%, citing signs of revival in the US economy such as improved business sentiment and optimism that industrial production will pick up. Still, it predicted a deeper economic decline through this year than it had in January.

The greenback fell to its lowest level in almost five months against the euro and weakened against the yen as investors pondered the implications if the Fed had flooded the market with its currency by buying government bonds.

The euro gained to $1.3788 from $1.3630 yesterday and reached as much as $1.3830, the highest level since early January. The yen advanced to 94.68 per dollar from 95.97. The euro gained to 130.54 from 130.81.

The US dollar also weakened amid signs stability is creeping back into financial markets, a sign the worst of the global economic slump may be in the past.

The Chicago Board Options Exchange Volatility Index, or VIX, fell to the lowest level since Sept. 12, which was the eve of the collapse of Lehman Brothers, in the biggest-ever US bankruptcy.

The London interbank offered rate, or Libor, for three-month loans in dollars slipped 4 basis points to 0.72% and has declined for 36 straight days.

Stocks in Europe rose for a fifth day, with oil producers rallying as the price of crude oil pushed higher.

The Dow Jones Stoxx 600 edged up 0.5% to 211.75. Royal Dutch Shell gained 1.5% as crude oil gained.

Oil rose to more than US$62 a barrel for the first time in six months after U.S. Energy Department figures showed US stockpiles dropped 2.11 million barrels to 368.5 million barrels last week.

Crude oil for July delivery rose 3.2% to US$62.05 a barrel on the New York Mercantile Exchange.

Air France-KLM Group climbed 11% after JPMorgan Chase released an upbeat assessment of Europe’s airline companies. British Airways climbed 1.9% and Lufthansa jumped 3.9%.

France’s CAC 40 climbed 0.9% to 3303.37 and Germany’s DAX Index gained 1.6% to 5038.94. The UK’s FTSE 100 fell 0.3% to 4468.41 as Lloyds Banking Group fell 8%.

Copper for July delivery rose 2.1% to US$2.1130 a pound on the New York Mercantile Exchange. Gold for June delivery rose 0.2% to US$928.80 an ounce in New York.

US stocks fell after Hewlett-Packard, the world’s biggest maker of personal computers, said annual sales will drop as much as 5%, with the US economy expected to remain week in coming months. The tech company fell 5.2% to US$34.67, leading the Dow Jones Industrial Average down 0.6% to 8422.04.

JPMorgan Chase slid 3.5% to US$34.55 and Home Depot fell 3.3% to US$23.83. General Motors was the biggest gainer on the Dow, climbing 14.2% to US$1.45.

The Standard & Poor’s 500 fell 0.5% to 903.47 and the Nasdaq Composite declined 0.4% to 1727.84.

Businesswire.co.nz

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