Just as investors were starting to seriously flag once again, the Fed
actually managed to pull-off a market-boosting intervention after a
string of false dawns.
The central bank announced on Tuesday that it would be launching a
Commercial Paper Funding Facility, i.e. a way for it to buy up
short-term debt issued by struggling companies seeking to raise cash.
It seems that, after being sceptical of the Fed’s rate cuts and
trillion dollar stimulus injections, the creation of this new special
credit facility was the kind of thing investors were hoping for.
The reaction was remarkably uniform from the Western indices. The Dow
Jones added 2.6% to cross 20700, an increase that rescuing the index
from the sub-20000 levels briefly struck after the bell. The DAX and
CAC, both of which had sank into the red at lunchtime, climbed 2.7%
apiece following the Fed’s announcement, with the FTSE leading the way
with a 3%, 5250-teasing increase.
Of course, that is nothing compared to the 3000 point fall suffered
by the Dow on Monday. And there is still a way to go until the end of
the US session, leaving plenty of time for the index to lose confidence.
However, it does suggest that Jerome Powell and his FOMC friends may
still have some market-easing weapons in their arsenal. Wednesday
night’s scheduled meeting, complete with fresh economic projections, is
becoming more and more interesting by the minute.
Another major beneficiary of the Fed’s move was the dollar. The
greenback went on a tear once the CPFF was revealed, surging 1.6%
against the yen and pound, and 1.9% against the euro. Cable is now stuck
under $1.2065 for the first time in close to 6 months.