As these news broke the ice for many investors during Wednesday’s session, many of the central banks throughout the world were trying to simultaneously boost the global financial scenario. Both these events acted as a stimulus for the stock markets that day as the Dow Jones industrial average rose by more than 400 points.
Central banks around the world made news of creating cheaper US dollar funding for the European nations in order to ease trading for these countries. This was made public after the release of data by United States showing the total labor employment for the month of November to be 206,000, the largest rise this year. On another side of the globe, china has indicated a flux in its monetary policy by allowing banks to hold lower reserves in their accounts.
The Dow was up 405 points, or 3.5%, to 11960 in the second session’s trading. All but one of the 30 Dow components rose. Caterpillar rose 7.3% and Alcoa gained 5.4%, while Home Depot shed 0.2%. The upwelling pushed the index back into positive terrain for the year. In comparison, the Standard & Poor’s 500-stock index jumped 40 points, or 3.4%, to 1235. Material, industrial and energy stocks were the biggest gainers. The technology-oriented Nasdaq Composite gained 83 points, or 3.3%, to acquire a level of 2599.
“Any time you see cross-broader coordination, it shows that we’re all in this together and everyone’s trying to solve the problem,” said Jack Ablin, chief investment officer at Harris Private Bank. “Policy makers aren’t turning their backs on Europe.”
The U.S. Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank have agreed to lower the price of US dollar swap options. This move was made in order to ‘ease the strains in the financial market’, said a Fed official.
“A lot of people want to view this as a potential turning point, but we’ve seen about a half dozen of these over the last six months and it’s the same old story,” said Charlie Smith, chief investment officer at Pittsburgh-based Fort Pitt Capital Group. “With rumors of some banks having funding difficulty over the last few days, the central banks are putting out the fire in the short term. They’re buying time. But how much time have they bought? It’s hard to tell.”
Besides this, the S&P’s Ratings Services downgraded many major US banks the past Tuesday including the six biggest financial institutions in the USA. This will create even more difficulties for investment banks such as J.P. Morgan and the Bank of America in their day-to-day funding. It is expected that the focus will soon shift from the US to the Eurozone as the finance ministers of the European bloc have acknowledged that the bailout aid is not as helpful anymore as it used to be.
“This rally is nice, but we need follow through from Europe,” said Uri Landesman, president of Manhattan-based Platinum Partners. “We need a long-term plan for how they’re going to support the currency…We need legitimate improvement, not just central banks bailing us out.”