stocks, oil, gold go vertical

Central banks open the spigots; stocks, oil, gold go vertical

November 30, 2011, 9:06 AM

The one-two punch of China cutting its bank reserve requirement — followed about two hours later by a global central bank action to make it easier for banks to access dollars — sent commodities, the euro and stock index futures in a nearly vertical move higher Wednesday. If you were wondering — risk is on! Of course, the backdrop for the moves is anything but positive. The People’s Bank of China explained its move as a way to boost liquidity amid market turmoil in developed countries. And the joint statement by the Federal Reserve, the European Central Bank and others summed up their efforts as designed to “ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses.” Read more on coordinated bank action.

What are central banks talking about when they cite “constraints” and turmoil? Take your pick. As the euro-currency union looks increasingly at risk of a breakdown, European banks have been scrambling to acquire dollars. The cost of swapping euros for dollars via implied one-month cross-currency basis swaps rose to its highest level in three years on Tuesday, writes MarketWatch’s Frankfurt correspondent William Watts. International businesses are putting in back-up plans for a dissolution of the euro, which would jack up the prices of imported brands, reports the Financial Times. And European finance ministers meeting Tuesday evening were told Italy is at risk of insolvency, according to a confidential report obtained by the Guardian newspaper.

For now, though, central banks are handing out cash — and investors think it’s time to buy.