Central banks provide liquidity

The chase by Marty Cej:

European stocks added to their gains and U.S. stock index futures surged after central banks around the world moved a few moments ago to provide additional liquidity to a financial system that is beginning to seize up. The Bank of Canada, U.S. Federal Reserve, Bank of England, European Central Bank, Bank of Japan and Swiss National Bank agreed to reduce the interest rate on U.S. dollar liquidity swap lines by 50 basis points and extend their authorization through Feb. 1, 2013. In short, that means the banks are providing cheaper money for longer. In its accompanying statement, the Bank of Canada said that the coordinated actions are meant to "provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity."

The action comes after China's central bank cut for the first time since 2008 the amount of cash that banks are required to set aside as reserves. In an unambiguous nod to slumping export demand from Europe, the People's Bank of China said reserve ratios will drop by 50 basis points to 21 percent for the country's biggest lenders on Dec. 5. An adviser to the central bank, Xia Bin, said at a forum this morning in Beijing that the PBOC would maintain a "prudent policy" in 2012. The fact is, prudence now demands lower interest rates in China and elsewhere in the world to revive flagging growth. Yesterday, the talk in the market was about QE3 ? not the "if" of it, but the "when." Earlier this week, the OECD warned that even Canada ? yes, even Canada ? may have to cut rates if things in Europe worsen any further. In other words, central banks are being compelled to stimulate growth whether they want to or not, which is a position none of them appreciate much. This morning, let's talk about the specifics of the coordinated central bank action and the PBOC decision but we'll need to broaden the conversation quickly to include new expectations for quantitative easing in the U.S. and rate cuts in Canada. Will Canadians see lower borrowing costs before year-end?

Finance Minister Jim Flaherty is giving a speech this morning in New York City. We've sent a camera. We'll hear from him shortly.

Meanwhile, in Europe, finance ministers wrapped up a crucial meeting in which they agreed on detailed plans to leverage the European Financial Stability Fund (EFSF or bailing bucket) but could not say by how much because of rapidly deteriorating credit markets. In short, they agree that a lot more money needs to be thrown at the problem by the EFSF but they can't say where they'll get the dough, though the letters I, M and F have been heard in the carpeted halls of Brussels, whispered as if in prayer. Christian Noyer, France's central bank governor and a governing council member of the European Central Bank, presaged the global central bank actions today to an audience in Singapore, saying that "We are now looking at a true financial crisis ? that is a broad-based disruption in financial markets." European leaders get together for a summit on Dec. 9. That means 10 more days of rising funding costs for euro-zone economies and falling confidence in European banks.

Canada's main competition regulator says it has "serious concerns" about Maple Group's $3.7-billion acquisition of the TMX Group. It seems the proposed takeover of Canada's financial markets by Canada's biggest trading firms ? as well as the takeover of the primary clearing house as part of the deal ? has raised the antennae of someone in Ottawa. The TMX and Maple Group have responded by saying they will work with the regulator to address those concerns and perhaps identify possible "remedial measures," which, if I recall my own youth correctly, can range from standing in the hall to getting the strap from Ms. Murphy, the ex-nun with forearms like tree trunks. The announcement comes a day before hearings in Toronto before the OSC. Paul Bagnell has the file.

U.S. outplacement firm Challenger, Gray and Christmas said this morning that planned layoffs in the U.S. were virtually unchanged in November from the preceding month but were down 13 percent from a year earlier. This could provide a little more bullishness to expectations that this Friday's nonfarm payrolls report could exceed the average forecast of 120,000. Canadian jobs are due out Friday as well.

Industry Minister Christian Paradis didn't so much as drop the ball on issue of foreign investment in the Canadian telecom industry yesterday so much as take the European Gambit, or what's known as Kick the Can Down the Road. Admitting that the issue is very serious and of great importance to Canadian consumers and companies, he concluded that it is so important he won't make a decision on it anytime soon. Incumbents, investors, would-be entrants, consumers? they're all asking "what gives?" We need to provide some better answers.

Busy day for economics at home and abroad. We're watching Canadian GDP and home prices as well as the Chicago PMI, U.S. pending home sales, productivity and the ADP employment report.