If investors were waiting for a coordinated response from central banks to the latest round of global economic stresses, they got them on Wednesday morning: Global stocks surged as the Federal Reserve, the Bank of Canada, the European Central bank, the Bank of Japan and other announced moves to support the financial system. The moves follow efforts by China, where authorities said they will cut the reserve requirement ratio of the nations' banks by half a percentage point.
U.S. stock index futures, which were already in positive territory before the central bank moves were announced, shot higher with less than one hour before markets open, suggesting that stocks will rise at the start of trading. Futures for the Dow Jones industrial average were up 256 points or 2.2 per cent. Futures for the broader S&P 500 were up 31 points or 2.6 per cent -- putting the index on track for three consecutive days of gains after slumping for seven straight sessions.
European stocks were also strong. The U.K.'s FTSE 100 was up 2.8 per cent in early afternoon trading, while Germany's DAX index was up 4.6 per cent. However, Japan's Nikkei 225 fell 0.5 per cent in overnight trading.
The move by central banks involves cutting the price on U.S. dollar swap arrangements by half a percentage point. In a statement, the Fed said that the moves aim to "ease strains in financial markets."
Meanwhile, the move by China comes as countries struggle to deal with the global ramifications of the European sovereign-debt crisis, which threatens to spill beyond the periphery of the euro-zone and into larger economies within Europe and beyond.
On Tuesday evening, Standard & Poor's cut the credit ratings on 15 global banks after using new criteria to see how banks would hold up under economic stress. The downgraded banks included JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Barclays PLC, BNP Paribas, Credit Agricole SA, UBS AG and Deutsche Bank AG. Canadian banks were spared.