NEW YORK, March 6 (UPI) -- The law of diminishing returns snuck up on two European central banks Thursday, when interest rate cuts failed to bolster stock markets.
The Bank of England and the European Central Bank each cut their key lending rates 50 basis points, a playbook staple that adds liquidity to financial systems and gives private banks some breathing room until commercial loans make a corresponding adjustment.
However, as U.S. Federal Reserve Chairman Ben Bernanke said recently, when rates are relatively low to begin with, the margins are cut too thin for further reductions to have much impact.
The Bank in England noted its rate cut to a historic low 0.5 percent "could have counter-productive effect on the operation of some financial markets and on the lending capacity of the banking system."
Usually a sure-fire shot in the arm for stock markets, the rate cuts were met with market losses Thursday, following Wednesday's gains.
The FTSE 100 index in London dropped 3.18 percent. In Frankfurt, the DAX 30 blue chip index stumbled 5.02 percent. In Paris, the CAC 40 lost 3.96 percent.
Across Asia, markets were down Friday morning. In Tokyo, the Nikkei 225 fell 3.1 percent early in the day. South Korea's Kospi Composite was off 1 percent. The Hang Seng Index in Hong Kong was off 1.2 percent.
The Obama administration's mortgage assistance plan was also met with scarcely a ripple on stock markets. But, the plan to bail out 4 million homeowners, while a lifesaver for some, is not being billed as a profit vehicle for financial firms despite the $75 billion investment.
Plan A in the mortgage strategy involves assisting lenders modifying mortgages. Plan B involves $200 billion in additional funds earmarked for the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association so they can match existing interest rates on mortgages to current market rates, helping as many as 5 million homeowners.
Thursday ended with Marvel Technology reporting a fourth quarter loss of $65 million as the revenue dropped 39 percent to $513 million. Investors will also be watching for any sign of a flutter or a flinch at General Motors Corp. after auditors Deloitte & Touche in a Securities and Exchange Commission filing formally warned that its net worth was sliding perhaps to the point that bankruptcy was inevitable.
Investors will also look at the employment situation Friday. After Automatic Data Processing Inc. said the United States lost 697,000 non-farm jobs in January, the Labor Department's more definitive report due Friday will likely confirm predictions the unemployment rate will rise above its current 7.6 percent.
Economists predict the unemployment rate could climb as high as 8 percent.
In addition, the government's monthly report on consumer credit is due Friday. After falling by $6.6 billion in December, economists predict credit dropped as much as $4.8 billion in January.
Diminishing returns, it turns out, does not mean a return to the good old days, at least in the near term.
