Markets gyrated lower as traders reacted to new stimulus measures from the Fed even as rumours in Europe propped up shares for a few hours.But first, the scoreboard:
Dow: 12,823.7, -14
Nasdaq: 2,930.5, +1
S&P 500: 1,355.7, -2
Here’s what you need to know.
- Markets opened marginally lower this morning, after an early announcement from Procter and Gamble shook investors. The world’s largest consumer-goods company cut its organic sales guidance to between 2 and 3 per cent growth as it registered weak sales in the developed world. Procter blamed high unemployment and slow-to-no GDP growth for the below-consensus forecast.
- After the opening bell, the U.S. EIA said crude oil inventories surged by 2.86 million barrels. The news put increasing pressure on oil prices, pushing them down more than 3 per cent to an eight month low.
- The Obama administration asserted executive privilege over documents related to Operation Fast and Furious in the late morning. The announcement dominated headlines as it came on the same day House Oversight Chair Darrell Issa had scheduled a contempt vote against Attorney General Eric Holder. Here’s everything you need to know about Operation Fast and Furious >
- Europe closed solidly in positive territory, with strong gains in Italy and Spain as borrowing costs receded. Good news also followed in Greece. New data out of Thomson Reuters showed deposits flowing back into the banking sector after consumer fears of a Greek exit from the euro declined.
- An hour later the Fed extended Operation Twist, a program where it sells short-term notes to buy longer-term denominated bonds. The idea is to add liquidity to the system without increasing the Fed’s balance sheet. But the $267 billion stimulus plan sent markets lower, as many market participants hoped for more aggressive easing.
- rumours that Angela Merkel would allow the European bailout fund to buy sovereign bonds sent U.S. markets nicely into the green. The plan would allow the fund to buy crisis-hit country debt in a bid to lower borrowing costs. But Merkel also said leaders had yet to discuss how to use the European Financial Stability Fund to make bond purchases and “no concrete plans” had been made.
- Fed Chairman Ben Bernanke started his press conference at 2:15 p.m., and markets immediately sold back off. Bernanke made it clear that the Fed still has more tools available to it if the economy shows deterioration.
- Justin Wolfers was one of the first economists to react to the Fed’s decision. His key takeaway: One more bad jobs report, and the Fed is going to start pumping. Pimco’s Mohamed El-Erian had a different view, saying the Fed’s new policy is causing “distortions that will take years to resolve.”
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