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Coordinated Central Bank Easing

Section: Business

Coordinated Central Bank Easing
The US Fed/European Central Bank/Bank of England/Sweden/Canada/Swiss Central Banks eased short term target lending rates by 50 bps this morning in coordinated fashion to stem the tide of uncertainty in global equity/capital markets. The Chinese eased their target rate by 0.27% while the Japanese did not participate in the easing but blessed the effort. The Aussies cut their rates on Tuesday by a full 1.00%.

Equity market volatility continued pre/post announcement
Asian stock markets finished 9% lower before the coordinated rate cuts....for Tokyo it was the single largest 1 day drop in over 20 years. European stock markets recovered from substantial losses following the news. The Dow traded in positive territory for most of the morning following the news and has now turned negative on the day.

Divergence continues between Fed Funds/LIBOR
This move puts the US Fed Funds rate at 1.50% and traders are still betting an 84% probability that the FOMC eases by another 25 bps at the end of the month. The effects of the move on interbank rates remains unknown as 1 Month LIBOR set at 4.29% before the announcement. Swaps rates have been volatile this morning and are currently up over 10 basis points.

Current LIBOR Fixings
1 Month LIBOR 4.29375%
3 Month LIBOR 4.52375%

If you have any questions or if I can provide any additional details, please feel free to give me a call.

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