Big move in the market this morning, with S&P futures up over 2.5%. We had two major moves by central banks: China reduces reserve ratio and the Fed lowers the rate on its liquidity swap to the ECB (and other central banks).
It's a 50bp swap rate reduction and term extension to ease demand for dollars in Europe. The implication on dollar liquidity however is expected to be muted. The euro basis swap spread improved only slightly.
The markets are looking for reasons to rally and two reasons were given. The overall impact on the euro-zone crisis is still uncertain. Italian and Spanish bond yields have not budged.