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 U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 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 U.S. 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 authorized through February 1, 2013.
Uh huh. “Should market conditions warrant” eh?
How bad is the situation in Europe? This tells you: It sucks and is at least as bad, and possibly worse, than it was when Lehman blew up.
The announcement this morning sent the futures skyrocketing, up another 20 handles on the back of the previous 10ish that came from China announcing its own rate and reserve cuts. Chinese PMI is out tonight and you must assume it will suck as the central bank has the number up front.
From a market technical perspective this will gap us over the 50MA on the S&P; should it hold today then you have a very nice technical trade toward the end of the year while the eggnog buzz holds up.