We could be facing the first rise in the local market today for two weeks after The Federal Reserve on Tuesday slashed its key interest rate yesterday to try and halt the gathering rout in world sharemarkets.
The Fed dropped the Federal Funds Rate by 0.75%, to 3.5%, for the first time in more than 20 years.
Stockmarkets steadied: they rebounded to end higher in Europe while in the US the move halted the gathering 5%-plus plunge to leave them down at the close but not as miserable.
After plunging 7.1% yesterday, the Australian market looks like rise strongly this morning with the futures showing a rise of 190 points on the Share Price Index.
That's down a touch from a 200 point rise signalled early on.
The Japanese market, which has fallen 30%, also may open in positive territory, according to the futures market. But the Hong Kong Hang Seng could be weaker.
The Dow was off around 128 points, and the S&P 500 and Nasdaq were also lower, but nowhere near as much as at the start of trading.
Shortly before the opening in New York, S&P 500 futures were down 59 points at 1,266.3. Nasdaq futures were down 81.5 points at 1,768 while futures for the Dow Jones Industrial Average were down 466 points at 11,640, after being more than 550 points down earlier in pre-market trade.
US bond yields remained sharply lower with the 10 year yield down to 3.47%.
Reading the statement, it's clear the markets in the US have got the message: this is not a rate cut to save Wall Street, but to try and soften the landing for the economy, whenever that happens.
The US economy is tanking: the question isn't if it's in recession, it's a question of how much damage will be done to consumers, business and the financial system there and around the world.
The Fed said in its statement:
"The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 3.5 percent.
"The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.
"While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
"The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
"Appreciable downside risks to growth remain. The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."
There you have it in that phrase above: "Appreciable downside risks to growth remain."
The Fed is saying the US economy isn't out of the woods by any stretch of the imagination. Nor is the rest of the world, even us in Australia with our much stronger economy and the chance of an interest rate rise next month because of that strength.
It was the biggest US rate cut since October 1984, when rates came down by 1.75% basis points.
The Fed holds its two day January meeting next week and the market expects a further cut of at least 0.25% and possibly 0.50%.
The aggressive move represents an urgent effort by the Fed to get on top of the deteriorating economic situation, and a recognition that it had fallen behind the curve in monetary policy.
It should have really organised a cut of half a per cent in late December or just after New Year.
After terming the selling wave Monday and Tuesday in Asia and Europe as panic, some traders turned around and characterised the Fed's move as 'panic'. Which it appears to be, but there's more a sense of a central bank rushing to keep up with the play and perhaps even move ahead.
The Fed cut came after Asian markets suffered the biggest falls in more than eight years in response to the sharpest slides in European indices since the 9/11 attacks on New York more than six years ago.
While Japan's Nikkei 225 lost 5.7% to 12,573.1, an 8.6% slide for Hong Kong's Hang Seng index to 21,757.6 constituted the index's worst two-day fall since the aftermath of the 1997-98 Asian financial crisis.
Australia's S&P/ASX 200 recorded its biggest slide since the index was launched in 2000, closing 7.1% and $100 billion in value wiped off market.
The sell-off was triggered by concern about the prospect of a US recession and more fall-out from credit market turmoil and by concern that US bond insurers were grappling with problems that would see their ratings cut, creating billions of dollars in new losses for stretched banks and broking houses like Citigroup and Merrill Lynch, not to mention investors offshore.
The Australian market lost 23% in a day in 1987; it has lost 25% since in the period since the peak on November 1.
Much of that is catch up as share investors here, in Asia, Europe and the US have pulled their heads from the sand, looked around, and realised there was a problem in the broader US economy and in the world credit markets that was serious and getting worse.
A timelier look at what was happening in the US in November and December by share investors might have lessened the intensity of this week's sell down.
The Financial Times quoted Ian Scott, strategist at Lehman Brothers, said the markets were pricing in a severe slowdown in the global economy
"We have seen one of the fastest declines in equity indices in 30 years. By our calculations, markets are now pricing in a certainty of recession in the US and 84 per cent probability of a similar impact to earnings in Europe," he said.
The
