Markets Over React to the Central Bank Annoucement.

Strategists said Europe’s sovereign debt problems will continue to be the key driver for the euro. The EU and IMF must now do something positive to help the debt crisis and protect the euro.

Markets Over React to the Central Bank Annoucement.

The news today can be best interpreted from what investors and analysts are saying this morning.

“As Europe dithered, monetary policy makers acted, even if their ‘actions’ have more symbolism than significance,” said strategists at RBC Capital Markets. “Markets breathed a huge sigh of relief.”

Yesterdays move by the Central Banks signaled leadership and direction. This is what the markets are looking for. Investors jumped head first into the markets.

The move is an attempt 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 a statement.

“It’s the first time we’ve seen this type of global coordination since November 2008,” said Michael James, a senior equity trader at Wedbush Morgan. “The degree of coordination sends a message to the markets that global leaders are going to do whatever they need to do to instill confidence in the markets.”

“The fundamentals just keep marching forward despite the market turmoil,” said Doug Cote, chief investment strategist at ING. “The real economy seems indifferent to the EU debt headlines.”

Central banks are “hoping the rate is so attractive that hitting the swap line makes business sense as opposed to signalling vulnerability,” he said. “They hope if they draw enough institutions, the stigma will decline, stresses on the liquidity front will ease and that will ease some of the bearish demeanor towards the euro.”

“The price action was because the market was short, not being bought by people entering new long positions in euros and equities,” he said. “It’s people closing shorts.”

This morning’s coordinated action also implies that the central banks feel conditions are much worse than they would otherwise lead us to believe, which is why more liquidity is needed immediately,” said Kathy Lien, director of currency research at GFT. “The markets are always relieved to see central banks put up a unified front, especially on the heels of a similar increase in liquidity from China.”

Removing the risk of liquidity problems increasing further as year-end approaches provides a major relief to financial markets,” said Greg Anderson, senior currency strategist at CitiFX in New York.
“The level of cooperation and responsiveness being shown by the G7 central banks suggests that policy makers are now highly engaged and likely to come forward with further measures in coming days.”

“The big deal is just saying they are going to be involved. It’s not like they brought out the tank, they brought out the six shooter,” he said.

“It’s not enough. It’s a temporary liquidity initiative which is good, but it won’t solve the problem, because in a couple of days, the problems will put on their hats again,” De Leus said.

 

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