Central banks ease monetary policies, markets fall anyway

Central banks were out in force on Thursday with more monetary stimulus. Bloomberg reports:

The Bank of England began today’s stimulus push, announcing it would restart buying bonds two months after stopping. Governor Mervyn King and colleagues raised their asset-purchase target by 50 billion pounds ($78 billion) to 375 billion pounds, meeting the forecast of most economists, in a bid to pull its economy from recession. They said output will likely remain sluggish after contracting in the past two quarters.

Within a minute of that decision, the People’s Bank of China cut its key interest rate for the second time in a month and allowed banks to offer bigger discounts on their own lending costs. The one-year lending rate will fall by 31 basis points to 6 percent and the one-year deposit rate will drop by 25 basis points to 3 percent effective tomorrow. Banks can offer loans of as much as 30 percent less than benchmark rates...

At 1:45 p.m. in Frankfurt, the ECB then cut its main rate by 25 basis points to a record low of 0.75 percent and said it will no longer pay anything on overnight deposits as sovereign debt turmoil threatens to drive the 17-nation euro economy into recession. Both actions were anticipated by economists...

Elsewhere, Kenya’s central bank cut its benchmark lending rate for the first time in 18 months and Denmark’s lowered its main borrowing costs to record lows.

Economic data on Thursday were mostly positive.

German factory orders rebounded 0.6 percent in May after having fallen 1.4 percent in April.

In the US , jobs data on Thursday looked encouraging. Private employers added 176,000 new workers to their payrolls in June, according to ADP. The number of planned layoffs fell to 37,551 in June from 61,887 in May, according to Challenger, Gray & Christmas. And initial claims for state unemployment benefits dropped 14,000 to 374,000 last week.

However, the Institute for Supply Management's non-manufacturing index fell to 52.1 in June from 53.7 in May.

Despite the flood of monetary stimulus and benign economic data, markets were unable to sustain gains on Thursday. Stocks ended the day down, the MSCI world equity index dropping 0.6 percent, and the euro hit a one-month low against the US dollar.

Of particular concern, the Spanish 10-year yield rose 37 basis points to 6.78 percent while Italy’s 10-year bond yield increased 21 basis points to 5.98 percent.