Major Market Movers

Markets After The Cut...

The fed took markets by surprise yesterday, cutting both the benchmark rates and the discount rate by 75 basis points, trying to fight recession and turbulences in the financial markets, in a try to contain the credit crisis and the housing slump spillover.
Financial markets reacted immediately to the fed's decision, as the U.S. stock markets skyrocketed, reflecting some happiness from investors that the fed eventually started to take serious actions to handle the crisis, yet after that they started to look at the other side of the flipped coin, and they thought that the cut is still not sufficient enough to support market liquidity, especially with some very bad earnings reported by the Bank of America, and now they are looking for more cuts in the fed's next meeting next week.

Analysts now do expected that the fed, following their decision to act in a firm and timely manner to mitigate the turbulences they will probably lower rates again next week maybe by a half point, in another trial to stimulate economic growth and try to find the bottom for the housing market. The next cut now started to get actually priced in the dollar exchange value against some major currencies.

From the other hand, the good news traveled to all countries around the globe, while Japanese markets rebounded heavily today, confirming that the Japanese investors definitely think that the fed has done a good job cutting rates like that, while maybe it’s a good push for the BoJ to start thinking more seriously about stimulating economic growth, and go for a rate cut again.

Moving to Europe, where the ECB represented by Mr. Trichet are still holding on a hawkish stand when it comes to monetary policy, despite comments from one member in the ECB that hinted for some worries on growth levels. But with the U.S. surprise cut, analysts are now discussing that Mr. Trichet will have to turn dovish, and to start cutting rates to go along with the current global trend, in our opinion and from our experience with the ECB policy over the years since it's inception, we beg to differ, as we see that they are going to be still more focused on the inside circumstances, not caring about whatever happens outside the European boarders, maybe they will eventually if the problem actually started to get to their economy, but if not…I don’t think so.

Eventually, the BoE might find themselves now in a position to lower rates maybe more than a 25bp, maybe it was wrong for them to leave rates steady at 5.25% in the last meeting, maybe they have to move forward and catch up now, but today's 4th quarter advanced GDP readings, might carry some answers for us, we can see how much the country's total production was affected by the international crisis.

Between here and there, the fed's cut yesterday was quite a good move, and effect might take some time to be actually seen in the markets, and in the economy as well, but it's definitely a good move, now let's wait for their next week's meeting to see if the fed will be bold and decisive again, and how markets will react then.