Sunday, December 4, 2011

Global Central Banker Trigger Massive Market Moves

On Wednesday, in an effort to reduce escalating stress in the global financial system, the U.S. Federal Reserve, the Bank of England, the European Central Bank and the central banks of Canada, Switzerland and Japan reduced lending terms to its member banks. In addition, China eased it monetary policy and Brazil reduced its benchmark interest rate for the third time since August. Markets responded enthusiastically to these actions with the FTSE 100 (Europe) up 3.1%, the S&P 500 (U.S) up 4.3% and the Hang Sang (China) up 5.6% for the day. On Friday, while addressing Germany’s parliament, Chancellor Angela Merkel said, “The future of the euro is inseparable from European unity. The journey before us is long and will be anything but easy.”

These actions by central banks reinforce the view that significant global economic issues persist. As France and Germany move closer to finding some common ground, resolving the Eurozone’s sovereign debt crisis requires consensus among a large set of players (another economic summit will take place on Friday). Debates continue on the impact of slowing economic growth in China. While in the U.S., as many politicians remain focused on 2012 election campaigns, addressing the federal deficit and financial system problems remain elusive. As Angela Merkel has suggested, we are a long way from resolving many of these problems. Uncertainty and volatility will likely continue and investors will confront more market mood swings.

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