Central Banks across the world main objective now is mitigating the endless bleeding from the prolonged Credit Squeeze which resulted to a world's recession. Yet they are adopting different policies, some believe that taking rates down to Zero is the suitable solution other believe that very low rates would not shore up the increasing downside risks to growth.
According to markets expectations Banks of England will trim their benchmark rates down to 1.0% with a unanimous decision which would be the lowest since 1694. The rate decision headed toward cushioning their economies preventing it from living a prolonged recession, the rate cut will follow last weeks interventions where the Chancellor of Exchequer gave the green light for the BoE Governor Mervyn King to buy bonds and commercial papers.
Yet the European Central Bank is complicating the situation because even with all those harsh times they hesitated in slashing their rates even when they took four consecutive cuts. According to market participants Trichet and his committee will be holding rates steady at 2.0% especially after his comments made last week that the most important meeting would be the one in March.
The Federal Reserve was one of the first banks that decided to slash their interest rates down to historic lows, when the feds decided two months ago to take their benchmark to a range of 0.0-0.25% this came to shock markets, they've seen that the situation was bad but they never expected that Bernanake would take this action.
Then the attitude was followed by the Bank of Japan, the fear of dipping another time in deflation which they suffered from for about ten years had dragged the bank in taking their rates down to 0.10% even when their rates were considered the lowest between rivals.
The European Central Bank and the Bank of England are the only two central banks that have enough space to maneuver because with the current very low rates they are still considered to be highest yielding. Yet the augmented fears and the endless deterioration in their economies might push them to extreme low rates.
It's been more than a year; the spillover from the US sub-prime mortgages that resulted in destructing all financial markets in the world was the main reason behind this stall, banks became hesitant in giving out money leaving markets with severe shortage of money.
Then the lost confidence had controlled all the actions taking place in markets, companies had no support from the financial sector where they wanted to depend on their retained earnings but the long lost confidence and the crippled demand from the world economies had resulted in hammering all the sectors earnings leaving them with one option which is to terminate jobs in order to trim down their expenses.
Since the beginning of the year the main concern was the weakening demand which curbed earnings, where those fears had resulted in the resumption of huge losses in the stock markets, where yesterday markets saw worse than expected earnings of Walt Disney and Kraft food.
Dow Jones fell 1.51% or 121.70 points reaching to 7956.66 levels adding to the losses seen since the beginning of the year reaching to -9.34%, the S&P 500 fell 0.75% or 6.28 points reaching to 832.23 levels reaching a total of 7.86% losses in addition to NASDAQ falling 0.08% or 1.25 points reaching to 1515.05 levels.
Those fears diffused into the Asian session as usual, Nikkei Index fell 1.11% or 89.29 points closing at 7949.65 levels at Tokyo's session. The Asian markets are also violently trying to survive this dilemma, in order to salvage their economy Bank of Japan decided last week to direct a total of 1 trillion yen in order to buy corporate bonds just to bolster financial markets.
Even with these class A fundamentals markets are still waiting for the US non-farm payroll reading which will be released tomorrow, where expectations clears out that 540 thousand jobs were terminated in January taking the Unemployment rates up to 7.5% from the previous 7.2%.
So dear reader watch out, today's rate decisions and tomorrows non-farm payroll reading will give us some insight about the futuristic outlook of those three major economies.