10:00AM New York, 2:00PM Frankfurt – The Central Banks around the world acted in unison to stem rising local interest rates and provide liquidity in the financial systems.

The central banks around the world are getting in the act, what appears to be a coordinated effort at global level to fight the perceived shortage of credit.

The Federal Reserve Bank, this morning issued a statement with an intention to calm the markets. In the statement the bank said that it is “providing liquidity to facilitate the orderly functioning of financial markets” and also added that it “will provide reserves as necessary” to meet “the needs because of dislocations in money and credit markets.”

The European Central Bank was forced to inject liquidity on Thursday and Friday. In the two days it has added nearly 130 billion euros in the market to curb the interest rate rising above its target rate of 4%. The rates had risen to 4.7% and after the injection interest rates fell to 4.1% but the credit markets remain jittery.

The Central Bank in Japan added 1 trillion yen in liquidity to keep the rates below 0.45% the rates had jumped to 0.55%.

The Reserve Bank of Australia added A$4.5 billion in liquidity. Singapore Monetary Authority added S1.5 billion and said that it is prepared to fund more liquidity if needed.

The central banks in Indonesia, Philippines, and South Korea expressed willingness to provide liquidity if needed.

The historic low interest rates in the U.S. during the last five years led to a rise of new kind of lenders, private lenders in the mortgage markets. These lenders provided liquidity in the riskier market segments that were shunned by the government agencies creating credit boom for the low and middle income families. Many economists believe that rates in the U.S. were kept too low for too long and the global financial markets are now paying the price.

More than 35% of U.S. housing loans issued in the last three years in the mortgage markets provided additional liquidity in the housing market. These new buyers willing to speculate in the marketplace bid up prices of homes across the nation to historic highs. The bubble like home prices in the states of Florida, Nevada, California, and other coastal states lifted home prices above the level that family with two income earners cannot afford. The affordability of home buying, measured in multiple of family income level, has fallen to the lowest level in the last twenty years in the U.S.


8:30AM New York, 8:30 PM Hong Kong – Asian markets corrected sharply on weakness in European and New York markets.

Asian markets closed declined with heavy losses in Korea, Hong Kong, and Australia tracking lower markets in New York and Europe. Korea led the decliners in the region with a loss of 4.2% followed by 3.6% fall in Australia, 3% decrease in Philippines and Hong Kong, 2.7% fall in Taiwan, and 1.5% decline in India, Indonesia, and Singapore.

In Hong Kong trading stocks fell sharply largely on the market nervousness than on fundamentals. Daily turnover on the main board dropped to HK$65.5 billion from HK$ 85.2 billion and volume on GEM market was reported at HK$0.5 billion, a decline of 50% from the previous session. Hang Seng Index opened sharply lower and attempted several rebounds in the morning trading but failed to gain much ground. Banks led the decliners. HSBC dropped 2% and Bank of East Asia fell 3%.

China reported July trade surplus of $24.4 billion, 67% jump from a year ago, and declined from $26.9 billion from June. The elevated surplus is fueling sharp rise in bank deposits, real estate prices, and stock market valuations. The rising demand is also fueling inflation in energy and food prices above the target set by the central bank. The People’s Bank of China said that the broadest measure of money supply, M2, rose 18% in July. Outstanding local currency loans in the month surged 16.6% and deposits in the local currency increased 16%.

Shanghai Composite Index edged fractionally lower to close at 4,749.37, still near the record high.

In Sydney trading ASX 200 fell 222.50 or 3.6% to 5,965.20. Of the total 201 stocks in the index, 9 gained, 189 declined, and 3 remained unchanged.

Perilya Ltd led the stocks in the index with a fall of 13.6% followed by 10% loss in Compass Resources, Mincor Resource, and Monadelphous Group. PMP Ltd led the gainers in the index with a rise of 2.6% followed by 2.11% gain in Futuris Corp, 1.7% increase in City Pacific, and 1% rise in Boom Logistics.

The Reserve Bank of Australia added liquidity in the market to stem the rising interest rates and worries that credit crunch may stem economic growth. The global injection of liquidity in local markets was carried out by the Federal Reserve Bank in Washington, the European Central Bank in Europe, and Central Bank in Japan.

7:00AM New York, 8:00PM Tokyo – Market indexes in Tokyo more than 2% as fears arising from credit worries in the U.S. spread to the Asian markets.

Nikkei 225 index plunged 406.51 or 2.37% to 16,764.09 at close with financial and brokerage stocks leading the decliners. Topix index dropped 2.96% to close at 1,633.93. Market turnover has reached peak level and today was no different. Daily turnover fell from 5.3 trillion yen to 4.5 trillion yen but still hovered at triple the daily average volume.

The Bank of Japan in a coordinated effort with other central banks in Australia, Europe and the U.S. added liquidity to the market by lending 1 trillion yen. The central bank lent money at 0.49% to fight the rising interest rate which had reached above 0.55%. Reserve Bank of Australia loaned A$5 billion to provide the liquidity in the market. In the overnight trading the European Central Bank and the Federal Reserve Bank in Washington added liquidity in the market to fight the rising interest rates and perceived credit crunch. Central Banks in Indonesia, Philippines, and South Korea expressed willingness to provide liquidity if needed.