Global risk appetite treaded water yesterday after EU Finance Ministers failed to reach an agreement on a €500bn package to cushion the economic shock in the EU. European equity indices ended the session flat and the Dollar, an inverse barometer for the efficacy of central banks’ credit and liquidity measures, was broadly stable in trade-weighted terms.
However, European and US equities are in the green today (at time of writing) and major currencies are up against the Dollar which is now trading at a nine-day low. The Australian Dollar has rallied 1.3% and the Kiwi Dollar 1%. The GBP/USD cross has climbed to a 3-week high of 1.245, despite data out this morning revealing that the UK economy had shrunk 0.1% mom in February.
Markets are seemingly reacting positively to a new wave of central bank measures designed to facilitate the flow of lending to governments and corporates.
The Federal Reserve has in the past 24 hours announced that it would i) expand its corporate bond buying program to include Exchange Traded Funds (ETFs) made up of debt from companies that recently lost their investment-grade rating and ii) offer loans to companies of up to 10,000 employees and being to directly lend to state governments and more populous countries and cities – a significant widening of its remit. Meanwhile the Bank of England announced today that it was extending the “ways and means”
facility, which allows it to finance the government directly in the event that the Treasury’s funding through the sale of government bonds to the market proves insufficient.
