Dow surges as central banks join forces

The world's largest banks make a coordinated effort to enhance liquidity. China's central bank cuts reserve requirements. US companies add more jobs than expected. October home sales spike.

By TheStreet Staff Nov 30, 2011 8:42AM

TheStreetImage: Wall Street sign (© Corbis/SuperStock)By Andrea Tse

 

Updated at 12:49 p.m. ET

 

U.S. stocks were surging Wednesday, catapulting the Dow more than 400 points, after some of the world's biggest central banks said they would take steps to boost the global economy. 

 

The Dow Jones Industrial Average ($INDU) was adding 413 points, or 3.6%, at 11,967. The S&P 500 ($INX) was up 41 points, or 3.4%, at 1,236, and the Nasdaq ($COMPX) was rising 86 points, or 3.4%, to 2,602.

 

The central banks of Canada, England, Japan, Europe, Switzerland and the U.S. announced measures to "ease strains in the 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 Fed said.

 

The central banks will lower the prices of existing temporary U.S. dollar liquidity swap arrangements by 50 basis points. The new rate will take effect on Dec. 5. London's FTSE was rising 2.7%, and Germany's DAX was gaining 4.2%.

 

Recent dollar liquidity swap arrangements have been created in response to strains in short-term funding markets in Europe. They’re designed to not only improve liquidity conditions in the global money markets, but also to reduce the risk that problems abroad could spread to U.S. markets.

 

“Markets will rally on yet another ‘quick fix’ and ‘illusion of progress,’” says Jeffrey Sica, president and chief investment officer of SICA Wealth Management. “Banks are severely overleveraged and no amount of stimulus could curtail the crisis without causing significant long-term economic problems.”

 

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These promising developments have, for now, helped steer some attention away from the shaky details on how European finance ministers plan to bolster the European rescue fund after their meeting in Brussels on Tuesday. Investors are now looking at the European summit on Dec. 9 for more direction on how European leaders plan to contain the debt crisis amid soaring borrowing costs in Spain and Italy. Economic and Monetary Affairs Commissioner Olli Rehn said Wednesday that Europe faces a “critical” period of 10 days to rescue the eurozone.

 

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Trading volume was mild, with about 1.3 billion shares changing hands on the New York Stock Exchange and roughly 491 million on the Nasdaq.

 

In corporate news, Standard & Poor's cut its ratings of Goldman Sachs (GS), Bank of America's (BAC) Merrill Lynch unit and Citigroup's (C) long-term debt to A-minus from A, and put their ratings on a "negative" watch. S&P's new ratings were part of a sweeping change to its rating method for 37 financial institutions published earlier this month. Wells Fargo (WFC) was downgraded to A-plus from AA-minus, and JPMorgan Chase (JPM) was cut to A from A-plus.

 

Pfizer's (PFE) best-selling product, the cholesterol drug Lipitor, will be offered in generic form starting Wednesday. The drug manufacturer has reached an agreement with some drugstores and pharmacy benefit managers that will allow patients to receive Pfizer's Lipitor at similar or potentially lower co-payments than the generic version. The move aims to help Pfizer to hold onto sales of the blockbuster drug. Watson Pharmaceuticals (WPI) said Wednesday it began shipping an authorized generic version of Lipitor.

OmniVision Technologies (OVTI), the digital imaging company, gave a weak outlook for the current quarter. OmniVision, which makes image sensor chips used in mobile phones, computers and other products, said it expects non-GAAP earnings of 5 cents to 17 cents a share for the quarter ending in January, with revenue between $160 million and $180 million. Analysts expect Omnivision to post a profit of 26 cents a share in the quarter on revenue of $201.4 million.

 

WebMD (WBMD) is exploring a sales process, according to a source with knowledge of the situation. The medical information company is already in discussions with private-equity firms, the source said, and has hired an investment bank, which is believed to be Credit Suisse.

 

The U.S. dollar index, which measures the dollar against six currencies, was falling 0.9% at $78.326 because the central bank effort will lead to more dollar-lending at cheaper prices. Gold, considered a hedge against inflation, for February delivery was adding $29 at $1,747.90.

 

The benchmark 10-year Treasury was falling 21/32, lifting the yield to 2.07%.

 

In economic news, Automatic Data Processing (ADP) said companies added 206,000 jobs in November, up from a revised 130,000 in October. Economists surveyed by Thomson Reuters had expected private-sector jobs to increase by 130,000 in November.

 

The Chicago Institute for Supply Management said its gauge of manufacturing activity in the upper Midwest increased to 62.6 in November from 58.4 in October.  Economists had forecast the purchasing managers index to remain unchanged. A reading above 50 indicates expansion in the manufacturing sector.

 

The National Association of Realtors' pending home sales index for October iincreased by 10.4% to a reading of 93.3 from 84.5 in September. Economists had expected to see a 1.5% gain, according to Thomson Reuters.

 

“Today’s solid batch of domestic economic data in the U.S. reminded the market that we in in a very different economic backdrop today than we were in 2008,” LPL Financial economist John Canally said.

 

The Federal Reserve will issue its Beige Book summary of economic conditions in 12 Federal Reserve districts at 2 p.m.

 

China's central bank also said Wednesday that it will cut the reserve requirement ratio for lenders by 50 basis points starting Dec. 5. The move, the first since December 2008, is expected to help bolster China's economy and increase liquidity while markets in developed nations struggle to stabilize. The rate cut may also signal that China will consider loosening its monetary policy in the future.

197Comments
Nov 30, 2011 11:13AM
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I wonder how many of the "average' investors got notified yesterday by their broker letting them know the central banks were going to unite and that the market would "surge", "soar" and "rocket" on the news? 

 

I also find it appalling that politicians and govt officials are basically exempt from trading on insder information so I wonder how many of them went "all in" in this morning know the market would "surge" today...   That law needs to be changed and they need to abide by the same laws as everyone else.  Why should they be allowed to trade on insider info and the rest of us would be tossed in jail?  Just another example of the corruption that exists...

Nov 30, 2011 11:08AM
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exactly! 

 

So can you all see why our poltical rep's look the other way when bank executives give themselves big bonuses?  The fed prints more money and then it is laundered through the banks.  Meanwhile, Dem's and Repub's are making our money more and more worthless which makes the average guy more and more desperate to make ends meet.--all because politicians are unwilling to take any sort of action that might hurt their chances of getting re-elected.   I suppose tomorrow we will be told there is no inflation and we will be asked to believe that too.  The system we have in place is so dysfunctional it is going to crash and the only question is when.
Nov 30, 2011 10:58AM
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And the US gets in deeper and deeper with China??  You all know that Obama hired Jeff Immelt as his "Job Czar." It's the same Jeff Immelt, who use to run G/E. G/E just moved it's XRay Division to China which help create tons of jobs and 6 research centers in China. This spurred the US investment of $2 billion in China??? So ... Barry .. when you hired Jeff Immelt to create jobs, did you forget to tell him which country he was supposed to create jobs in??? What a leader!!!
Nov 30, 2011 11:05AM
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This action by World Central Banks tells you only 1 thing....
....That we are headed for a world wide depression.... Wait depression is too weak a word, we are headed for  Global Economic Devastation. It didnt work in Japan, it didnt work in the US, it didnt work in Europe, what makes them think this will work this time? 
Nov 30, 2011 10:32AM
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Read correctly: US central bank (uncle benjie and his inbred dwarf, timmy) pledge trillions to bail out europe which we will pay for. just another pile of poop in the long road to financial ruin.
Nov 30, 2011 10:31AM
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forget everything said in this article, remember, oil, oil, oil, the root cause of all the worlds trouble, get it down to say, fifty dollars a barrel, and watch the economy take off.....
Nov 30, 2011 10:39AM
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Central banks make a coordinated effort to enhance liqudity? Isnt this part of the problem, fractional reserve banking relies on loaning more money than is available if there is no new debt there is no new liquidity therefore debt can nevar be paid off.This is a sham paper over a mountain of debt with more debt, kick the can down the road a bit.Eventually this situation will lead to hyperinflation then let the crisis begin.
Nov 30, 2011 11:00AM
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We have to be concerned ... if you think about the market now, it is not responding to known stimulus.  Nobody wants to take in debt even at the historically low interest rates.  We have to be asking ourselves why.  And the answer comes down to basically a "trust issue".  Nobody is now putting trust in our financial futures.  All this "Dow up" and "Dow down" from day-to-day is just noise, and not a real indication of wealth.
Nov 30, 2011 11:00AM
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What a surprise...Stocks go up and so does the price for a barrel of oil...Make gasoline $2.00 a gallon again and see what the economy does.

 

For those that read and believe the Bible it does say that the world will have one currency before the end of times...Guess what one step closer......

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MARKET NEWS: Dow rockets 350+ as central banks unite to ease market strains | Read more
Read title as central banks are resupplying trillions of dollars to the Wall Street bankers. The retired baby boomers have already drained all the money out of the stock market and it was collapsing. It's like going pass go in monopoly. The Wall Street bankers just passed go and will get another $10 trillion in monopoly money. 

Nov 30, 2011 9:14AM
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Oh great, China has decided to follow in the footsteps of Europe & America and allow increased leverage from their financial organizations.  And our Market celebrates.....

Makes total sense to me.  Nothing could go wrong with a move like that, right???

Oh my effin head!!!  (delk '11)

Nov 30, 2011 12:15PM
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Honestly, lets break this all down. All Goverments on this planet recklessly spend money then when they are running low on funds and cant pay the bill they create a panic. They say we will go into a recession and everything will go to crap. Okay now heres the funny part ,regardless on what goes on , Politicians will still get paid and the average Joe gets the shaft. Can someone tell me whats wrong with this picture. When an AVERAGE JOE spends more than he has the banks dont up limit to make the individual comfortable .This is what they do , the bank takes the house,the car, the utilities are shut off. Wake up people the Government of the world is a broken system itself, full of corruption and deception. New Laws or Regulations are put into place and these laws are put into action by corrupt politicians who will somehow reap the rewards. Any politician who gives away  any currency should have it approved by the taxpayers if they STICKING thier hand in the COOKIE JAR. It's not Reagans ,Bush,Clinton, or Obamas fault that spending is out of control,it's generation of Presidents that have done this and it's time for a change. The whole political system has to be reworked to flush out all the crap. We will never fix our Economy until we get rid of all the bad apples.
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Didn't loose monetary policies get in our current predicament? REFORM OR REMOVE CONGRESS!
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The rate cut may also signal that China will consider loosening its monetary policy in the future. Markets were becoming optimistic about the possibility the Asian superpower will once again come to the rescue of the global economy.
Strange that the world is looking towards China a communist state to save the world. Lenin would be so proud right now along with Marx.
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1 minute ago
 Yesterday weren't 37 banks downgraded? Where is all this money coming from? I like to think positive, but reality needs to play a part as does common sense.
Yep Buzz Bernanke  "prints monies to infinity and beyond" is about ready to open the printing presses once again folks. This is going to led to an even bigger crisis in a few months the end is near folks. 



Nov 30, 2011 10:16AM
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So helicopter Ben has persuaded others to partake in solving a fiscal problem with more liquidity. I thought corporations and investors were sitting on lots of cash. This appears to be another market manipulation that weakens the dollar. God help us if this strategy backfires.
Nov 30, 2011 9:53AM
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Time to stop reading  ...  EU does this   ..... China does that. Both are walking the plank economy wise, and their biggest investment is in the US.. We have the power to finish the deal   ... not them!    .... One country in the EU CREATED JOBS   .. that was Germany. Buy American products/services, built/made in the USA    ... let the EU and China scramble for the leftovers!
Nov 30, 2011 10:28AM
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Oh Super.  These guys will handle the problem.  So we are going to bank our way to prosperity?  Wait,  but aren't these the cats that helped get us into this mess?  Just plain old Wall Street trap the shorts kinda day.  Oh Hum
Nov 30, 2011 11:00AM
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This action by World Central Banks tells you only 1 thing....

 

This global economy is tanking and they don't have enough any answers!

Nothing has worked because people don't have jobs!

 

This is nothing more than the White Shoe boys taking down the the suckers that was shorting the market...they use the media to get a certain amount of money flowing in "their desired" direction and then they take the market in the opposite direction.  These guys on Wall Street are crooks plain and simple!

Nov 30, 2011 12:58PM
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Big Whoop! Dow soars, then tomorrow it'll plummet because someone sneezed or farted too loud which makes Europe's credit get worse somehow. This gambling is legal but I can't bet on a football game because it's illegal in most states. The hypocrisy! Angry
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