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European Central Bank started buying Italian and Spanish government bonds, giving a positive but temporary effect to the market. However, politicians' ability to handle the crisis is doubted as chaotic, more like another hit to addicts rather than decisions on the basis of the fundamentals. Business confidence fell rapidly between May and July, with positive views dropping from 38.3% to 23.2% and negative views rising from 19% to 33.7%. The Fed's low-rate commitment itself is a sign of economic weakness.
Gold price soared up and Swiss franc kept appreciating, showing risk aversion attitudes of investors. Other commodities' prices fell 12%, giving some hopes to the developed market. Bank shares slided, underperforming the broad market, which is worsened by American monetary fund's unwilling to buy European bank debt. The spread between the borrowing costs of European banks and of governments is widened and that between corporate bond and government bond also reached its highest this year, mainly due to the falling of government-bond yields as well as rising corporate rates.
The Fed's commitment of keeping rates close to zero chimes with the "ice age" thesis, a prediction of Japanese-style crunch in the developed world.
If the economy doesn't improve, QE3 is more likely to be carried out later this year, but may temporarily push up equity price. This kind of relief has to be kicked eventually.
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