Rate cuts … even in Europe?
As I will not be able to trade today, just one thing …
What about interest rate cuts … even in Europe tomorrow???
The situation …
Due to the global credit crunch, money markets are unusually tight … the spread between the official rates and the interbanking rates is widening every day … reaching levels, unseen since 1987 … lack of confidence cited as a reason.
Now it is up to the central banks to act and reassure market participants that they will be there …
The reaction so far … Canada lowered rates by 25bps … surprising markets … Australia stood still … and hinted at “at least not thinking to hike soon”, again surprising a bit …
Tomorrow, the BoE and the ECB are both expected to hold rates steady, the FED next week is said to lower rates by at least 25bps.
So … my idea …
as the UK faces big problems itself … even thinking about nationalizing Northern Rock, the troubled lender, the BoE could / should lower rates … by … MY guess at least 50 bps!!!
And as we know … yes, the BoE is known for surpise actions …
As the FED has to do something to calm credit markets and together with the plan to freeze mortgage rates … MY guess … they will lower by 50 bps as well … it could be even possible that they lower for a short timeframe the discount rate even CLOSER to the FED FUNDS rate … reducing the “stigma” to use it.
Now, what about the beton heads 
… the ECB … usually it is sure thing that they stay put … BUT in the current environment … I think … we could see even a move (25bps?) from them as the world changes around them … inflation can not be top priority at the moment … if rates plummet around them, the Euro could easily shoot up to levels, which are counterproductive …
MY best guess … they stay put, but offer special tenders at LOWER rates … a workaround to save face.
So … let’s wait and see … we could easily see a short squeeze in equities in the next days as surprise decisions can only come to the upside …
Tags: BoE, central banks, credit crunch, ECB, FED, Northern Rock, rates
