Source: Business InsiderJoe Weisenthal
MARKETS SURGE AS FED/ECB/BOJ/BOE/SNB/BOC ANNOUNCE COORDINATED INTERVENTION
All the world's central banks have just announced a big coordinated intervention to lower swap rates.
What does that mean?
Basically this: European banks have been parched for liquidity, and
need access to dollars. The ECB can't supply them dollars unless it
borrows them from the Fed.
Essentially today's action makes it easier for the ECB and thus European banks to borrow dollars.
It's not a solution to the euro crisis by any means; it just means
that the most acute liquidity problems will be mitigated for now.
The market is loving the news.
US futures had been down by 0.5% at one point this morning, and now the Dow is up 400 points.
Note that there are some other bullish things going on today. China
lowered its Reserve Requirement Ratio also this morning, and we got a
strong ADP jobs report.
So, lots of bullish action going on.
Here's the full announcement from the ECB.
----------30 November 2011 - Coordinated central bank action to address pressures in global money markets
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank,
the Federal Reserve and the Swiss National Bank are today announcing
coordinated actions to enhance their capacity to provide liquidity
support to the global financial
system. The purpose of these actions is to ease strains in financial
markets and thereby mitigate the effects of such strains on the supply
of credit to households and businesses and so help foster economic
activity.
These central banks have agreed to lower the pricing on the existing temporary US dollar
liquidity swap arrangements by 50 basis points so that the new rate
will be the US dollar Overnight Index Swap (OIS) rate plus 50 basis
points. This pricing will be applied to all operations conducted from 5
December 2011. The authorisation of these swap arrangements has been
extended to 1 February 2013. In addition, the Bank of England, the Bank
of Japan, the European Central Bank, and the Swiss National Bank will
continue to offer three-month tenders until further notice.
As a contingency measure, these central banks have also agreed to
establish temporary bilateral liquidity swap arrangements so that
liquidity can be provided in each jurisdiction in any of their
currencies should market conditions so warrant. At present, there is no
need to offer liquidity in non-domestic currencies other than the US
dollar, but the central banks judge it prudent to make the necessary
arrangements so that liquidity support operations could be put into
place quickly should the need arise. These swap lines are authorised
through 1 February 2013.
European Central Bank Decision
The Governing Council of the European Central Bank (ECB) decided in
co-operation with other central banks the establishment of a temporary
network of reciprocal swap lines. This action will enable the
Eurosystem to provide euro to those central banks when required, as well
as enabling the Eurosystem to provide liquidity operations, should they
be needed, in Japanese yen, sterling, Swiss francs and Canadian dollars
(in addition to the existing operations in US dollars).
The ECB will regularly conduct US dollar liquidity-providing
operations with a maturity of approximately one week and three months at
the new pricing. The schedule for these operations, which will take the
form of repurchase operations against eligible collateral and will be
carried out as fixed-rate tender procedures with full allotment, will be
published today on the ECB’s website.
In addition, the initial margin for three-month US dollar operations
will be reduced from currently 20% to 12% and weekly updates of the
EUR/USD exchange rate will be introduced in order to carry out margin calls.
Those changes will be effective as of the operations to be conducted on
7 December 2011. Further details about the operations will be made
available in the respective modified tender procedure via the ECB’s
Website.
Information on the actions to be taken by other central banks is available on the following websites:
Bank of Canada (http://www.bankofcanada.ca)
Bank of England (http://www.bankofengland.co.uk)
Bank of Japan (http://www.boj.or.jp/en)
Federal Reserve (http://www.federalreserve.gov)
Swiss National Bank (http://www.snb.ch)
