Stocks in the United Stated were rallying on Wednesday, with the Dow Jones Industrial Average up by over 400 points in mid-day trading, to close an astounding 490 points higher, or over 4%. The rally occurred following the announcement from some of the world’s central banks that they would take measures to boost the world economy.
The US Federal Reserve stated that along with the United States, Switzerland, Europe, Canada, England and Japan would be enacting steps to lighten the stress in financial markets and ease the effects of that strain on households and businesses, to stimulate economic activity.
On December 5th, the new rate for credit default swaps will take effect, with central banks lowering the price of present temporary US dollar liquidity swaps by fifty basis points. Economists warn that a simple increase in liquidity will not be a quick fix for deeply troubled financial institutions.
Central Banks, Governments Need To Work In Conjunction To Fix World’s Problems
This deep financial rut was highlighted by the downgrade of 37 financials by Standard & Poors yesterday, and analysts state that the central banks can merely accomplish near-term fixes, and long-term solutions can only come from central banks and governments working in conjunction to fix the underlying structural issues plaguing the global financial system.
The Chinese central bank also announced on Wednesday that it will be reducing the reserve requirement ratio for its lenders by fifty basis points in order to help boost the Chinese economy, and bolster liquidity during a period where markets in the developed world struggle toward stabilization.
This reduction in the reserve requirement ratio also signals a possibility of a loosening of Chinese monetary policy in the future, causing optimism in equity markets that the superpower in Asia will come to the aid of the global economy once again.
Equities markets were also lifted by unemployment data from Germany, which saw unemployment fall to 2.91 million, its lowest level since November of 1991.
Promising developments such as these have served to distract investors from the sparse details of how finance ministers in Europe plan to shore up the Euro zone rescue fund following Tuesday’s meeting in Brussels.
Following the announcement made by the global central banks, all eyes are now on the December 9th European summit for more details on the strategy leaders in the Euro zone plan on using to control the debt crisis while borrowing costs continue to rise in Italy and Spain.
United States Jobs Report Beats Estimates, Planned Layoffs Decline
In the United States, companies in November added 206,000 new jobs, versus analysts’ estimate of 130,000, marking the largest increase in job creation in the past year. This increase in jobs was due largely to an explosion of jobs in the service sector, and modest increases in construction and manufacturing.
November’s jobs figures were in-line with the recent decline in the United States unemployment rate as well as weekly jobless claims and show positive growth in the major sectors of the US economy.
Small and medium sized business owners found new ways to hire and grow for the month of November, with service providers accounting for 178,000 jobs, a 28,000 increase in the goods-producing sector, 7,000 manufacturing jobs, and 16,000 construction jobs added.
Planned layoffs by firms in the United States were also narrowly lower for November, although job cuts for 2011 have exceeded the total job cuts for 2010. Investors will be paying close attention to a key United States Jobs report due out on Friday, expected to show for November that the US economy added 122,000 jobs.