Fed, Five Central Banks; Add Liquidity

123jump.com Staff
18 Sep, 2008
New York City

Six central banks in a coordinated move increased dollar supply in global credit markets as interbank lending comes to a grinding halt in the wake of AIG fall. The Fed led move in conjunction with central banks in Canada, Japan, UK, Europe and Switzerland will make available as much as $247 billion of liquidity. The move, though welcome by banks around the world is not likely to calm nervous investors. Separately in the UK, Lloyds TSB will acquire HBOS for 12 billion pounds.

[R]10:50AM New York – Central banks around the world added dollar liquidity to the system. Markets in Europe and New York rebound. Gold rises for the third day in a row.[/R]

Central bankers around the world add dollar liquidity in the financial markets. In a coordinated move spearheaded by the Federal Reserve Bank, central banks in Japan, Europe, UK, Canada and Switzerland increased dollar supply to credit market thorugh various technical maneuvers.

The coordinated move, one of the largest in the last three years through interbank swap deals increased dollar supply by $180 billion in the global markets. The central banks limit will be increased led by the largest facility with the ECB of $110 billion, an increase from the current limit of $55 billion. The Swiss National Bank limit will be increased to $27 billion from $15 billion, the Bank of England limit to $40 billion and the Bank of Japan and the Bank of Canada limit will increase to $10 billion.

In total, five international central banks will increase dollar supply to $247 billion.

In the UK, Lloyds TSB offered to buy independent mortgage lender HBOS Plc for 12.2 billion pounds. Lloyds offered 232 pence a share, nearly 60% premium from the previous day closing price of HBOS. The troubled mortgage lender had relied on wholesale funding which has increasingly dried up in the wake of U.S. credit market crisis. Lenders in Australia and UK have seen their access to cheap source of funding nearly shut off more than a year.

Dow Jones & Company replaced American International Group with Kraft Foods Inc. as of trading on September. The 112-year old index, once the leading barometer of the market index has lost its luster in the last decade as institutional investors have migrated to broader indexes such as S&P 500 and Russell 2000 and 3000 indexes.

Of the nine stocks added in the Dow index in the last one decade, only three are trading at higher prices from the date of inclusion. On November 1, 1999 Microsoft and Intel were added to the index but have declined 28% and 47% respectively. Home Depot and AT&T (which was then SBC) have fallen 38% and 12% since part of the index.

AIG and Pfizer were added to the industrial average on April 8, 2004 and since then have fallen 84% and 37% but Verizon added on the same day has risen 16% in the period. In its latest move, Bank of America was added on February 19 and the stock has declined 16% and Chevron added on the day is nearly unchanged.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 260.49 or 2.22% to 11,489.30, Hang Seng index in Hong Kong decreased 4.73 or 0.03% closed to 17,632.46. CSI 300 index in China lower 33.14 or 1.72% closed to 1895.99. ASX 200 index in Australia decreased 114.90 or 2.43% to close 4,607.30. The KL Composite index in Malaysia lower 11.33 or 1.13% closed to 991.66.

The Kospi Index in South Korea decreased 32.84 or 2.30% to close at 1,392.42, SET index in Thailand closed lower 4.76 or 0.79% to 600.38 and JSE Index in Indonesia increased 17.78 or 1.00% to 1,787.67. The Sensex index in India increased 52.70 or 0.40% closed to 13,315.60.

Europe Markets Review

In London FTSE 100 Index traded higher 93.50 or 1.90% to 5,005.90, in Paris CAC 40 Index increased 63.41 or 1.59% to 4,063.52 and in Frankfurt DAX index traded higher 88.01 or 1.50% to 5,948.99. In Zurich trading SMI increased 66.61 or 1.00% to 6,720.94.

Earnings Review

FedEx Corporation, a global package delivery company reported first quarter revenues rose 8% to $9.97 billion from $9.20 billion a year ago. Net income in the quarter fell 22% to $384 million or $1.23 per diluted share compared to net income of $494 million or $1.58 cents per share, a year ago.

FedEx Corporation ((FDX)) in the last one year traded as high as $109.87 in September 2007 and as low as $71.33 in July 2008. Based on the yesterday’s closing price the company has a market cap of $27.41 billion.

Carnival Corporation, a cruise line operator reported third quarter revenues rose 10% to $4.8 billion from $4.3 billion a year ago. Net income in the quarter fell 8% to $1.3 billion or $1.65 per diluted share compared to net income of $1.4 billion or $1.67 per share, a year ago.

Carnival Corporation ((CCL)) in the last one year traded as high as $52.10 in October 2007 and as low as $29.22 in July 2008. Based on the yesterday’s closing price the company has a market cap of $30.65 billion.