In an effort to get ahead of the global crisis, five central banks cut rates today. This was a massive almost simultaneous cut in rates which in many cases was unanticipated. This is still may not be enough as we race to zero with rates around the world.
New Zealand ---- 150 bps to 5.0%
Sweden --------- 175 bps to 2.0%
Bank of England - 100 bps to 2.0%
ECB -------------- 75 bps to 2.5%
Denmark --------- 75 bps to 4.25%
This is big news but you would not know it from the markets. Currency markets were relatively unaffected by the news. Of course, if the everyone cuts rates, the relative interest differentials still stay the same. Currency markets are more focused on business cycle fundamentals. Equity market showed almost no reaction. The reason for the limited impact is that the central banks are following not leading interest rates.
In the US, the Fed funds rate is trading well below the target. The Fed funds rate is at 1/16 and the target is at 1%. If the Fed cuts the target, who cares. Overnight deposit rates in Europe are at 2% while the target is at 2.5%. Overnight call rates in Japan are below the .3% target. Overnight deposits in the UK are trading .9 -1.75 which is below the BOE of 2%.
In Sweden and New Zealand, short rates have been higher then the central bank target, but the slowdown in the economies suggests that more monetary stimulus is needed.
New Zealand ---- 150 bps to 5.0%
Sweden --------- 175 bps to 2.0%
Bank of England - 100 bps to 2.0%
ECB -------------- 75 bps to 2.5%
Denmark --------- 75 bps to 4.25%
This is big news but you would not know it from the markets. Currency markets were relatively unaffected by the news. Of course, if the everyone cuts rates, the relative interest differentials still stay the same. Currency markets are more focused on business cycle fundamentals. Equity market showed almost no reaction. The reason for the limited impact is that the central banks are following not leading interest rates.
In the US, the Fed funds rate is trading well below the target. The Fed funds rate is at 1/16 and the target is at 1%. If the Fed cuts the target, who cares. Overnight deposit rates in Europe are at 2% while the target is at 2.5%. Overnight call rates in Japan are below the .3% target. Overnight deposits in the UK are trading .9 -1.75 which is below the BOE of 2%.
In Sweden and New Zealand, short rates have been higher then the central bank target, but the slowdown in the economies suggests that more monetary stimulus is needed.
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