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Special Coverage

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Central Banks move its forces to beat the global (US) problem

Thu, Sep 18 2008, 14:30 GMT
by Mauricio Carrillo, Noemi Jansana

FXstreet.com

"Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures."

Above, you have read the press release published by the six biggest Central Banks to inject  large amounts of USD liquidity in order to save the global financial market. Central Banks are moving due to the private banks reticence to lend money to other - nobody has confidence in the neighbor - and they pull all the efforts, more than US$ 125 billion, to prevent the fiscal situation from deteriorating even more. They also stated appropriate actions would be added in the future depending on the market situation.

According to Tatsuya Kawanishi, FXstreet.com's Junior Advisor, the market reaction was  text bookish  "risk aversion strategy."  Soaring gold price indicates warning bells for national bonds. The risks of USD crash and bonds crash are barely avoided by the coordinated central banks intervention. Major impact in the  Forex market has not been seen so far while global stock markets have been sinking.

Yesterday, CNBC said that Morgan Stanley may be in talks to possibly be acquired by China's CITIC (in fact, this Chinese bank owns 9.9 percent of Morgan) though Morgan is also considering a merger with Wachovia or another US bank.

Alberto Muñoz, Forex Advisor at FXstreet.com, said that Goldman Sachs is near bankruptcy. Their Credit Default Swaps (similar to an insurance against bank default) were priced yesterday at 344 basis points which means that to insure against a 1 million dollars loss you have to pay 344,000USD, a very expensive premium (remember that Lehman Brothers CDS were above 1000 basis points and Morgan Stanley CDS are now at 500 basis points).

Alberto concluded: "I had lunch with friend who works as a hedge fund manager and told me that every time a client takes out the money from Goldman there's somebody crying in the investment bank. Maybe any other US bank will rescue Goldman but it's not sure..."

Official Links

• · Federal Reserve Actions - Federal Reserve and other central banks announce further measures to address elevated pressures in funding markets
• · Swiss National Bank - Measures taken by central banks to calm the money markets
• · Bank of Canada Announces Swap Facility with U.S. Federal Reserve as part of Coordinated Central Bank Actions
• · Bank of England - Coordinated Central Bank Action to Improve US$ Liquidity
• · European Central Bank - Measures designed to address elevated pressures in the short-term US dollar funding markets
• · Bank of Japan - Coordinated Measures Designed to Address Elevated Pressures in Short-Term Funding Markets

In-Depth Analysis

•  · Central banks fight USD money market problem by Danske Bank A/S
• · Daily Forex News - Forex - Central banks unite to ease liquidity freeze as the dollar tumbles, WallStreet saga continues by ACM - Advanced Currency Markets
• · Mid-Day Forex Technical Report - Markets Stabilized after Central Bank Actions, Dollar Still Weak by ActionForex.com
• · European Market Update - Central Banks announce fresh measure to combat liquidity concerns; UK retail sales beat expectations by TradeTheNews.com
• · Daily Market Report - On the currency front, the yen fell against the dollar after the central banks? by Wachovia
• · Daily Analysis - Lloyds TSB acquirers HBOS the largest mortgage lender in Britain by Finotec Group Inc.

Related News

• · Ctrl Banks Pump Dlr Funds Into Mkts But Doubts Remain (Dow Jones)
• · Fed adds reserves via overnight system repurchases (Thomson Financial News)
• · ECB to offer overnight dollars with global cenbanks (Thomson Financial News)
• · BOJ to 'encourage' overnight rate to stay at 0.5 pct (Thomson Financial News)
• · BOE: Coordinated Central Bank Action To Aid USD Liquidity (Dow Jones)
• · Australia c.bank injects extra cash as rates jump (Thomson Financial News)
• · Japan Welcomes BOJ-Fed Swap Deal; FX Action Unlikely (Dow Jones)
• · ECB does not tolerate second-round effects-Stark (Thomson Financial News)

Published on  Thu, Sep 18 2008, 15:11 GMT