Global equities surged this afternoon after central banks announced co-ordinated global action to provide liquidity to the financial system, and after China cut its banks' reserve requirement ratios. Better than expected data released from the US also provided support on Wall Street.
By 4pm (London time) the FTSE 100 reversed early morning losses and had surged by 3.71% to 5534.94, while the Dow was up 431.02 points to 11,986.65 and the S&P 500 was 3.5% higher at 1239.28.
Central Banks to the rescue
Central banks from the world's leading economies shocked financial spread betting markets this afternoon after they announced they will take co-ordinated steps to prevent a lack of liquidity in the global financial system and help foster economic activity.
The US Federal Reserve, European Central Bank, Bank of England, Bank of Japan and the central banks of Canada and Switzerland said in a joint statement they had agreed to lower the cost of existing dollar swap lines by 50 basis points from 5 December.
Other measures included setting up bilateral swap arrangements between the central banks so that any bank could tap additional liquidity in their own currencies if necessary.
In addition, The Bank of China cut the reserve requirement ratio for its commercial lenders for the first time in nearly three years to ease credit strains and shore up an economy running at its weakest pace since 2009.
China's central bank said it lowered the reserve ratio by 50 basis points, which reduces the ratio for the biggest banks to 21% from a record high 21.5%, freeing up funds that could be used for lending to cash-strapped small firms. The new level becomes effective on 5 December.
The surprise move by central banks is aimed at preventing global financial markets from coming under pressure, potentially leading to a seizing up of credit, as Eurozone leaders attempt to finds a way to stem the debt crisis.
Europe has ten days to find a solution
Economic and monetary affairs commissioner Olli Rehn said today that the region is entering a critical period of ten days in order to agree upon a solution for the Eurozone crisis.
Though Eurozone ministers agreed on detailed plans to leverage the EFSF, they could not say by how much because of rapidly worsening market conditions, acknowledging they may have to turn to the International Monetary Fund for more help to avert financial disaster.
While EU leaders scramble to agree upon a final solution before the next EU summit on 9 December, most analysts believe that only more radical measures such as massive intervention by the ECB to buy government bonds can staunch the crisis.
Meanwhile, Eurogroup ministers agreed to release their portion of an €8 billion aid payment to Greece. The money is expected to be released by mid-December, once the IMF signs off on its portion early next month.
US economic data points to recovery
Data released this afternoon showed that business activity in the US expanded in November at the fastest pace in seven months, a sign the factory-led expansion continues in the face of Europe's debt crisis.
The Chicago PMI figure increased to 62.6 in November from 58.4 the previous month as orders and production strengthened. Meanwhile the production gauge increased to a seven-month high of 67.3 from 63.4, and new orders rose to 70.2, the highest since March, from 61.3. The employment measure eased to 56.9 from 62.3 the previous month.
A separate report announced that companies added more jobs than anticipated in November, easing concern that the job market is stagnating in the third year of the US recovery. The ADP employment report said that 206,000 private jobs were added to the economy in November, the biggest this year following a revised 130,000 gain the previous month.
The report comes ahead of the all-important non-farm payrolls report on Friday, which is expected to show that private payrolls rose by 146,000 in November.
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'Dow Spreads Soar as Central Banks Coordinate to Boost Liquidity', Article by IG Index, last update: 30-Nov-11
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