Markets fall in advance of Bernanke keynote speech
ALL eyes are on Jackson Hole today, where US Fed chairman Ben Bernanke will deliver a keynote speech on the global economy. Shares fell across global markets ahead of the speech, but gold also dropped -- usually a sign of economic confidence.
The Federal Reserve chairman used a speech at the same event last year to point the way to a second round of quantitative easing, or QE2, that pumped extra cash into the faltering US markets in a bid to lift the economy.
Last night, however, traders were selling shares before Bernanke's speech, which is being made to an audience of central bankers in Jackson Hole, Wyoming. Shares were being sold on general weakness, but also as nervous investors decided the risk of holding paper outweighed any possible upside.
"You are in an environment where fear supersedes all form of logic. A lot is being put on what's happening tomorrow. People are just very risk-averse," said Randy Billhardt, head of institutional sales and trading at MTV in New York.
Despite a degree of hype, it is far from clear whether Bernanke will provide concrete action for further monetary stimulus or simply outline general guidelines for supporting the ailing economy.
Analysts at Citigroup said Bernanke is more likely to use the occasion to flesh out the points made in his August policy statement, highlighting that downside risks have risen and several options are available if headwinds intensify. Citi thinks another round of QE will be among the less likely options on the table.
In Europe, the FTSEurofirst 300 index of leading shares fell 1.3pc. Germany's DAX closed 1.7pc but had been down 5pc at one stage, on talk Germany could join other countries in banning short-selling of bank shares. France, Spain and Italy all extended temporary bans on short-selling yesterday -- which stops investors betting on falling share prices.
Despite nerves about the economic outlook, and what if any action Ben Bernanke might promote today, gold fell for a third day yesterday.
It's the biggest three-day drop in almost three years, after prices for the precious metal had been pushed to all-time highs last week. (Additional reporting by Bloomberg and Reuters)