SCOREBOARD: Bull rush

What a night – lots going on and I guess the big news was that most of the world's major central banks – Federal Reserve, ECB, BoE, BoJ, BoC and SNB – agreed, at around midnight (AEDT), that they would take "coordinated actions to enhance their capacity to provide liquidity support to the global financial system.” Specifically, the central banks have cut the price on existing temporary US dollar swap arrangements to US dollar OIS plus 50bps, which is a cut of about 50bps from what is currently charged. It will apply from December 5 to February 1 2013. The banks also announced they'll set up bilateral liquidity swap arrangements to cover any of their own currencies should that be needed. The Fed pointed out that US financial institutions weren't, at present, facing difficulty obtaining short-term funding but said they had a "range of tools” to provide liquidity if needed. The decision at the Fed wasn't unanimous though – 9-1 – and it was interesting to note Richmond Fed President Lacker (filling in for Plosser) dissenting.

Now the market impact was fairly immediate and moves were huge – 3m USD/EUR basis (three month forward rates) for instance jumped from about -150bps to -115 bps (settled at -124 bps), the US swap curve steepened as spreads came in hard on the 2-year and 3-year – falling about 10bps a piece. Then in the forex space, the euro shot up over two big figures to 1.3533 and the Australian dollar soared over three big ones to hit a high of 1.0328, while European stocks all surged higher – Dax closed 4.98 per cent higher, CaC was 4.2 per cent higher and the FTSE was 3.2 per cent higher. In each case financials were a key driver, up about 5.5 per cent in Germany, 5 per cent in France and 3.1 per cent in the UK. Basic materials and energy stocks also got a solid boost though and this reflects a couple of other fairly important developments.

So a few hours after central banks announced the liquidity measures, the People's Bank of China stepped in to cut the reserve requirement 50bps to 21 per cent, which is the first cut in three years – a solid sign now that the PBoC is more concerned about growth than inflation, so most are looking for further easing next year. Then, in the US, we saw some decent jobs data, with the ADP employment report suggesting jobs rose 206,000 in November which was a good 76,000 over and above the consensus. Pending home sales then surged 10.4 per cent in October and the Chicago PMI rose to 62.6 from 58.4. The Germans even managed to post a lower unemployment rate – 6.9 per cent in November, from 7 per cent the month prior.

This is all good news and in conjunction with a bounce in Japanese industrial production yesterday and solid, though slowing, Indian GDP (6.9 per cent in the third quarter from 7.7 per cent), gives some cause for hope. Again though, and as positive as those central bank moves were (given they'll head off any further US dollar liquidity squeeze or crunch), they still don't really solve Europe's problems and these are problems that will disrupt this positive growth profile if they aren't dealt with now.

We now know more about how the EFSF is going to be beefed up after details were released yesterday morning, and that's great. But we still don't know how much they've got in the armoury though – officials suggest less than €1 trillion – and it can't be positive that they are turning to the IMF. Other than that we've only got rhetoric – the strongest coming from Poland's finance minister who said he expects the ECB to take forceful measures after the December 9 meeting when most expect proposals for closer European integration to be passed.

Back to the price action, and metals had the most pronounced response in the commodity space to central bank action and economic data – Dr Copper shot up 5.4 per cent, silver is currently 3 per cent higher and gold is about $24 higher to $1746. In contrast, crude was mixed, the bid on WTI fairly limited at the moment, having been up 2 per cent at the high. Currently, the rise is a more modest 0.6 per cent to $100, while Brent is actually down 0.3 per cent to $110.

Moves on Wall Street were obviously strong and there was no fade in motion. Indeed, the S&P500 showed no weakness as the trading day wore on, closing up 4.3 per cent (1,247), which was basically the high. The Dow added 490 points (12,046), the Nasdaq lifted 4.2 per cent higher (2,620), while Australia's SPI is underperforming slightly, rising by 2.99 per cent (4,237).

Otherwise, the US Treasury curve looks to have steepened so far, as the yield on the 10-year rose over 6bps on a 13bps range to 2.07 per cent, the 5-year was just over 2bps higher at 0.95 per cent while the 2-year was off smalls (0.25 per cent). Australian futures were then belted around, the 3s and the 10s on a 16-17 tick range and so far down 7 ticks on the 3s (96.79) and 4 ticks on the 10s (95.968).

Bits and pieces otherwise. The Fed's Beige Book reports that, "Overall economic activity increased at a slow to moderate pace since the previous report across all Federal Reserve Districts except St. Louis, which reported a decline in economic activity.” European CPI was steady at 3 per cent in November, while in Germany retail spending rose 0.7 per cent in October after a 0.4 per cent rise the month prior.

Looking at the day ahead, the Australian Bureau of Statistics releases the October retail sales report at 1130 AEDT alongside building approvals for the same month. The consensus is that sales will rise 0.4 per cent, while approvals are forecast to rise. The Chinese then put out their PMI at about 12 AEDT while tonight, the major prints are probably the USM ISM index, and initial jobless claims.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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