America’s central bank said it will purchase 40bn dollars (25bn pounds) of mortgage-backed bonds a month to stimulate the housing market and keep long-term interest rates low. In a major departure from the two previous rounds of stimulus, the Fed said it will persist with the policy until the outlook for the job market improves “substantially”. The Dow Jones Industrial Average and the Standard and Poor’s 500 both closed up more than 1per cent after one of the most-eagerly awaited decisons from the Fed’s rate-setters in months. The Dow is now at its highest level since 2007. “They are targeting mortgage bonds in an effort to drive rates lower,” said Stewart Cowley, head of fixed-income at Old Mutual Asset Management. “But they are writing a blank cheque,” he added, The Telegraph reports.
EADS is to win the big prizes in its €48bn tie-up with BAE Systems, providing both the chief executive and the headquarters for the merged aerospace and defence giant. As talks around Europe between EADS and BAE and the British, German and French governments continued yesterday, it emerged that London and Farnborough may yet play a significant role in the merged group. It is understood that Britain would be the base of the enlarged company’s defence interests, although the sop to UK political sensitivities outraged MPs already doubtful about the merger. Up to 20 MPs will meet on Monday amid growing concerns about the deal, The Times says.
George Osborne has received a boost from international forecasts showing “tentative signs” that the economy will begin to recover in the months ahead. The prediction from the Organisation for Economic Cooperation and Development follows figures this week showing another fall in unemployment and the Chancellor’s own assessment that there are “positive” signs. The Paris-based international think-tank suggested that a “turning point” in the UK’s fortunes could come within the next six-to-nine months, leading to a return to growth. Many leading OECD countries, including China, India, and economies in the euro area will continue to experience a slowdown in the months ahead, the think-tank said, The Telegraph writes.
The too-heavy regulatory burden on banks is stifling the housing market, according to Steve Morgan, the founder and chairman of housebuilder Redrow. The main issue in housing today is the lack of availability of mortgages, said the industry veteran, a problem which he laid at the feet of the regulatory authorities. “The FSA [Financial Services Authority] has over-regulated banks to the extent that they haven’t got the balance sheets to lend – and they forgot how to lend as well,” he said. “There’s not enough competition; we need more competition in the banking sector.” None the less, Mr Morgan renewed his attack on so-called NIMBYism in the planning system – the “not in my back yard” culture that he said lingers among planners and decision-makers, despite recent planning reforms and the housing shortage, according to The Telegraph.
John Hayes, an energy minister, will ask financial regulators to look into the oil market after 80 MPs demanded to know why drivers are paying so much at the pump. Speaking in the House of Commons, he promised to write to the Financial Services Authority highlighting concerns about the oil market. In addition, he said the Bank of England will expand its inquiry into Libor – the interest rate rigged by bankers – to include the oil price. His announcement comes just weeks after the Daily Telegraph revealed warnings that the oil market is wide open to “manipulation or distortion”. In a report for G20 finance ministers, George Osborne was told traders have opportunities to influence oil prices for their own profit, The Telegraph explains.
Investors went shopping for shares in Sainsbury’s yesterday amid talk that the Qataris may be mulling a fresh bid. The stock gained 5½p to 337½p as traders chewed over rumours that Qatar Investment Authority, which owns nearly 26% of the retailer, may be contemplating making a proposal of between 450p-500p a share for the supermarket group, The Daily Express says.
When the Federal Reserve revealed its promise of unlimited quantitative easing on Thursday, the central bank had its most dramatic effect exactly where it intended: at the heart of the mortgage market. The yield on mortgage securities guaranteed by Fannie Mae, the government-owned finance group, fell to a record low, presaging further reductions in mortgage rates for US borrowers. The Fed promised to buy $40bn of mortgage-backed securities (MBS) issued by Fannie Mae and other so-called housing agencies each month and, unlike in earlier rounds of quantitative easing, it did not set an end date. That sent investors into agency-backed securities and pushed the yield on Fannie Mae mortgage securities down by 24 basis points to 2.12%, The Financial Times reports.