Federal funds rate innovative programs

If it is an atmosphere that stock markets fear above all, it is uncertainty. The trend on the main stock markets still made charges yesterday. Despite the good news that has incorporated the easy recapitalisation of Goldman Sachs, caution still prevailed. European indices have finished in the red in the example of the CAC 40, which ended just above of 4.100 points (see page 17). At the close of New York, the Dow Jones assigned 0.27, to 10.825,17 points, and the & S P 500 going 0.20, to 1.185,87 points, but the Nasdaq managed to grab 0.11, to 2.155,68 points.

The atmosphere remains febrile pending committed iron arm between the Bush administration and Congress on the plan to rescue the American financial system (see pages 30 and 31). More and more operators are skeptical of the rapid implementation of the measures announced last weekend, some even fearing that the vote of the Act for the launch of the device would be pushed after the end of the current parliamentary session. The hearings before the Congress of the pattern of the Fed, Ben Bernanke, and the Secretary of State for the Treasury, Henry Paulson, were not reassured.

Anxious investors

Above all, beyond the time of implementation of the rescue plan, some begin to doubt its true effectiveness to calm the anxiety of investors. "So far, no action whether it be 7 declines in a row (...) Federal funds rate, innovative programs (...)" "enabling auctions with ease of financing or the opening of the discount window facilities not Bank have proved be the magical recipe", said Andrew Capon of State Street Global Markets. However these concerns double of a resurgence of concerns about the economic environment.

Ben Bernanke himself was "very worried" risk weighing on growth in the United States, estimating that GDP should grow in the second quarter at a rate well below its potential. The publication of a decline in stronger than expected sales of older housing in August came to support these statements. However, according to Marie - Pierre Ripert, Economist at Natixis, "Ben Bernanke did not open the door to a decline in the rate;" "he feels that inflationary risks remain high."

In this context, the US bond market is up slightly. The performance of State borrowing in 2 years, evolving in contrast to price, relaxed 5 basis points, at 2.01. The prospect of an increase of emissions of American debt to finance the $ 700 billion rescue plan $ hinders the performance of the obligations. The "flight to quality" benefits more short term emissions, so that the performance of emissions to 1 month (T-bills) is close to zero.

In Europe, where growth prospects are still more economy turns south and the United States, the relaxation of rates has been even more pronounced. The performance of the borrowing of German State 2-year relaxed almost 15 basis points, to 3.75. It is true that the IFO's German business climate index fell to its lowest for three years.

The Germany threatened

"This collapse of confidence is dramatic and shows that the quasi-recession are in southern Europe and the United Kingdom now threatens the Germany, which was previously of strong man of Europe", says Julian Callow, at Barclays Capital, that sees these figures a reason for the European Central Bank to lower rates more sooner and more significantly.

The investigation of the Insee on activity in France also argues for such an action. "European economic environment is favourable for bonds: the old Continent is bogged down in the trap of stagflation, which could restore the attractiveness to the inflation-indexed bonds", notes Nicholas Gartside, Manager at Schroders bond.

The improvement did not meet yesterday in the money market. The interbank rate to 1 month $ Libor 1 month, rose from 3.2 to 3.42 Tuesday yesterday. Same thing for its equivalent in euros, the Euribor, from 4.84 to 4.9. Despite injections of liquidity in dollars still carried out yesterday, including the ECB, the banks are still reluctant to lend to each other.