A dramatic end to November overnight with markets in Europe and the US soaring on the news that six major central banks had moved to ease funding pressures and China made its first monetary policy easing in three years.
The two announcements were issued within an hour of each other overnight, leading some analysts to wonder if this was the first example of central bank co-ordination involving China.
The news capped what was looking like another value destroying month, and continued the rally of the past three days.
It means the Australian market, which lost more than 4.5% last month, will start December with a rush today with the futures contract up 120 points or nearly 3% this morning.
Offshore BHP Billiton and Rio Tinto shares were up 7% and more than 8% respectively as investors chased resource stocks in the wake of the Chinese move to ease monetary policy.
Markets in Europe and the US were up 3% to 5%, gold oil and copper jumped sharply and the US dollar fell, but the euro and the Aussie dollar were higher.
The Dow was up 3.5% or more than 400 points and the S&P 500 was up more than 3.6%. Both indices are back in the black for the year so far.
But as relieved as markets and investors were, there’s still no sign of any deal from Europe that will end the growing fears about the longevity of the euro and the eurozone.
In effect the move is the US Federal Reserve bailing out Europe and giving it time to come up with the so-called ‘Big Bazooka’ idea that resolves the eurozone crisis once and for all.
The moves were announced in statements issued simultaneously by the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada and the Swiss National Bank.
It was reminiscent of similar moves in 2008 when dollar liquidity tightened dramatically, especially in Europe where US investors have abandoned banks, cutting credit lines and withdrawing deposits.
“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,” the banks said in the joint statement.
The banks lowered the pricing on existing US dollar swaps (the most recent was done in September between the banks, but failed because it was too expensive).
The new pricing will apply to all operations beginning on Monday December 5. Access to the swap lines, which had been scheduled to expire in August, was extended until February 1, 2013.
The central banks said they also agreed to establish temporary bilateral liquidity swap arrangements that would allow the banks to provide liquidity in any currency if needed.
The move followed a surge in euro- US dollar swap costs which hit a three year high on Tuesday as the freeze in European credit markets intensified, as it did through 2008 and then deepened after Lehman Brothers collapsed.
As well, the European Central Bank on Tuesday failed to fully offset bond purchases in a weekly money-market operation offered a further sign that European banks have been hoarding cash amid worries over the spread of the debt crisis and other factors.
The news came as China said it would reduce the reserve requirement ratio for banks by 0.5 percentage points from next Monday.
In the first easing in three years China’s central bank cut the RRR to 21% for large commercial banks and 17.5% for mid- and small-sized banks. An estimated 396 billion Ryan ($US62.38 billion) in capital will be released into the market.
The move came after the Shanghai stockmarket suffered a nasty 3.2% fall yesterday on suggestions there would be no change in the tough restrictions on property dealings.
The rally which started Monday ran out of puff in Asia yesterday after two days of gains which just about summed up the month, long on promise (at the start) and very weak on performance.
Asian markets fell yesterday with Hong Kong’s Hang Seng Index lost 1.5%, while China’s Shanghai Composite index declined 0.4%.
Japan’s Nikkei Stock Average fell 0.5%, and South Korea’s Kospi slipped 0.2%, although the S&P/ASX 200 index ended the month with a small late rise of 0.3% on the day.
With November ending, the Hang Seng was off by around 10%, the Japanese market suffered a loss of 6.7%, the Korean index was down 3.5% and the Australian market had lost 4.7% for the ASX 200.
The Ords fell 4.6%, its second worst monthly performance this year behind September.
The market has also lost 11.1% since the start of the year, and is down 17.4% since the year’s high in mid-April.
That will all change today with the overnight futures market predicting a big rise this morning.
The Australian dollar slid under parity with the US dollar, but then surged to climb well above $US1.02, for a rise of 2% on the day.
It is up more than 5% in the past three days. Before the overnight rally, the Aussie had lost 4.6% in value in November.
The euro rose 1.2% against the greenback.
