Operation Twist and IMF report continue to hammer markets
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The FTSE 100 continues to fall as investors wait for American equity markets to open in order to assess the potential fallout of the Federal Reserve’s “Operation Twist”.
The FTSE 100 is resting just above the 5,000 mark (at 1300 BST), having opened at 144 points under yesterday’s close this morning.
The Federal Reserve unveiled the £250 billion Operation Twist yesterday – the latest effort to promote stronger economic growth through selling-off short term paper and buying long.
The S&P 500 index was down 2.94% at yesterday’s close while the Dow Jones was also down 2.5% over the course of the day.
The Fed’s actions might have been a disappointment to the markets, but they “did not really do more than acknowledge reality,” says Ted Scott, the director of global strategy at F&C Investments.
“It is now accepted that the US economy is growing at a tepid pace with increased risk of recession, and the risk of financial disruption from the eurozone debt crisis has also risen in recent weeks,” says Scott.
The Fed’s announcement comes shortly after the IMF’s Global Financial Stability Report, which called on banks to bolster capital positions.
While the focus is currently on the Fed’s announcement, the difficulty European banks are likely to find sourcing capital, combined with an over reliance on central banks, “will determine how severe the current slowdown will become.”
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