Tuesday, March 11, 2008
Fed, EU Central Banks Expand Securities Lending
In a move co-ordinated with three European central banks and the Bank of Canada, the Federal Reserve expanded its securities lending to enable bond dealers to brrow upto $200 billion of treasurys against mortgage backed securities. The lending was also expanded to 28 days instead of the standard overnight lending procedure that was in place. The Fed also announced increases in its dollar 'swap' arrangements with the other central banks, which led to a co-ordinated boost in the dollar credit available to primary dealers in the US and EU.
Wall Street Journal - In Frankfurt, the European Central Bank said it will resume lending dollars for up to 28 days to stem reemerging pressure in the funding markets. It will do so through a "term auction facility," as it did in December and January. The first, for a up to $15 billion will be March 25, to settle March 27. In London, the Bank of England said it would supply £10 billion ($20 billion) in its three-month repo on March 18, and that it will accept a wider range of collateral -- as it did in December and January -- at both March's auction and on April 15. The Bank of Canada said it would auction two billion Canadian dollars (US$2.01 billion) in 28-day term purchase and resale agreements on March 20 and again on April 3. The Swiss National Bank said it will auction dollar loans on March 25.
Forbes - The Federal Reserve surprised and delighted the U.S. stock market Tuesday morning, sending shares higher at the open. Futures markets popped when the Fed announced the lending facility an hour before the open and the gains held once the bell sounded. The Dow Jones industrial average was up 271 points to start the day, rising 2.3%, to 12,011, while the Standard & Poor's 500 added 28 points, or 2.2%, to 1,301, and the Nasdaq gained 52 points, or 2..4%, to 2,221.
I'll eat my words about a sure-fire rate cut this week. Happily. For once, the Fed is right on its game. By short-circuiting the banks and passing more credit directly to primary dealers, and in the process taking mortgage-backed securities off the market, they're striking at the root of the subprime mortgage crisis. This stock boom is bound to last longer, and go higher, than anything they could have achieved with another rate cut. In fact, I'll go so far as to say that even the next bad bit of news, such as more write-downs, increased foreclosures, or a slowdown in consumer spending or oil breaking $110 a barrel is not going to affect this rally. We're good for at least March. And time is what the subprime tainted investors and lenders need, more than anything, to stabilize their situation and work out deals, capital infusions or restructuring.
Another positive vibe going around is the rise of the dollar. There's some whispers going around that the dollar is done dropping, and it's going to start climbing again. This could be due to a lot of reasons, including the fact that the winds of recession have crossed the oceans and are threatening world markets, forcing currency devaluations and increased inflation in Asia and the EU. This will lead to a rise in the dollar, and provide considerable help in tamping down inflation in the U.S. and improving consumer sentiment, and additionally freeing the Fed's hands in case it needs some more rate cuts.
The net effect of all this, likely to play out over this month and in April, is that everyone lets out a big sigh of relief and gets back to business. But I'm afraid its a bit too early for that. All I can say is that there won't be much talk of a recession in the next two months. What happens after that is, well...the future.
Wall Street Journal - In Frankfurt, the European Central Bank said it will resume lending dollars for up to 28 days to stem reemerging pressure in the funding markets. It will do so through a "term auction facility," as it did in December and January. The first, for a up to $15 billion will be March 25, to settle March 27. In London, the Bank of England said it would supply £10 billion ($20 billion) in its three-month repo on March 18, and that it will accept a wider range of collateral -- as it did in December and January -- at both March's auction and on April 15. The Bank of Canada said it would auction two billion Canadian dollars (US$2.01 billion) in 28-day term purchase and resale agreements on March 20 and again on April 3. The Swiss National Bank said it will auction dollar loans on March 25.
Forbes - The Federal Reserve surprised and delighted the U.S. stock market Tuesday morning, sending shares higher at the open. Futures markets popped when the Fed announced the lending facility an hour before the open and the gains held once the bell sounded. The Dow Jones industrial average was up 271 points to start the day, rising 2.3%, to 12,011, while the Standard & Poor's 500 added 28 points, or 2.2%, to 1,301, and the Nasdaq gained 52 points, or 2..4%, to 2,221.
I'll eat my words about a sure-fire rate cut this week. Happily. For once, the Fed is right on its game. By short-circuiting the banks and passing more credit directly to primary dealers, and in the process taking mortgage-backed securities off the market, they're striking at the root of the subprime mortgage crisis. This stock boom is bound to last longer, and go higher, than anything they could have achieved with another rate cut. In fact, I'll go so far as to say that even the next bad bit of news, such as more write-downs, increased foreclosures, or a slowdown in consumer spending or oil breaking $110 a barrel is not going to affect this rally. We're good for at least March. And time is what the subprime tainted investors and lenders need, more than anything, to stabilize their situation and work out deals, capital infusions or restructuring.
Another positive vibe going around is the rise of the dollar. There's some whispers going around that the dollar is done dropping, and it's going to start climbing again. This could be due to a lot of reasons, including the fact that the winds of recession have crossed the oceans and are threatening world markets, forcing currency devaluations and increased inflation in Asia and the EU. This will lead to a rise in the dollar, and provide considerable help in tamping down inflation in the U.S. and improving consumer sentiment, and additionally freeing the Fed's hands in case it needs some more rate cuts.
The net effect of all this, likely to play out over this month and in April, is that everyone lets out a big sigh of relief and gets back to business. But I'm afraid its a bit too early for that. All I can say is that there won't be much talk of a recession in the next two months. What happens after that is, well...the future.
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