LONDON, Sept 14 As familiar as markets have become with dramatic policy initiatives, there have not many weeks in history where the world's two most powerful central banks made open-ended pledges to do all in their power to stabilise markets.
While investor scepticism still abounds about their long-term success, the instant adrenaline shot from the latest forays from the U.S. Federal Reserve and European Central Bank cannot be ignored.
The major significance for investor horizons is the commitment to act repeatedly in future to reach their goals and to use all means at their disposal to finish the job.
The Fed's third round of bond buying in four years is most notable by linking the longevity of the latest programme of mortgage securities purchases to a substantial drop in the 8.1 percent U.S. jobless rate, a move hailed by Barclays economist Dean Making as "a new era" for QED.
And although the ECB offer last week to buy unlimited amounts of short-term sovereign bonds or euro countries requesting aid was a different tack, it too was rooted in chief Mario Draghi's July 26 open-ended promise to do "all it takes" within the bank's mandate to stabilise the euro.
A green lights this week from Germany's top judges for the wider euro rescue programme merely strengthened Draghi hand.
The seriousness of the action reflects the scale of the threat to a global economy that looked at risk of stalling again amid the "tail risk" of euro collapse, U.S. fiscal seizure and spluttering emerging economies.
Picking through that will remain a tactical minefield for investors as the central banks dig in for the long haul. And after strong runs for risk markets in recent weeks, analysts say it may require evidence that the central bank action is reviving real economies to fuel a further strong run.
UNCORKING THE PIPELINE
The central banks' impact can be seen not only in the cumulative scale of market moves since Draghi's July speech but also in the uncorking of many bunged up credit markets.
World stocks are up almost 20 percent to their highest levels in more than a year. Wall Street has recorded one of its best years to date in almost a decade, while equity volatility gauges there are plumbing lows not seen since before the credit crisis blew up in 2007.
Italian and Spanish 10-year government bonds have returned more than 10 percent each over the six weeks, with their short-term borrowing costs more than halving. As any ECB bond buying, unlike the Fed's, would be sterilized to neutralise effect on the overall money supply, the euro has jumped to three month highs on the dollar above $1.30
And in a sign of the global impact, the Fed move saw lagging emerging market equities finally get into gear and outperform already pumped up developed markets on Friday.
What is more, the view that policy-sown future inflation rather than economic collapse and deflation is once again in the balance of risks -- gold prices have climbed again to their highest since February. Brent crude oil futures hit four-month highs close to $118 per barrel on Friday.
But arguably the most significant market impact has been in allowing a resumption of corporate and bank borrowing again on capital markets, particularly in Europe.
With even the bigger Spanish banks issuing bonds again this week, ThomsonReuters data shows new debt sales from non-financial European companies this week so far was, at $20.5 billion, the strongest week for new corporate issuance since September 2009.
Almost as eye-catching was a report from JPMorgan earlier in the week that the ultra-conservative U.S. prime money funds -- whose withdrawal from European banks over the past year was a key part of their mounting funding crisis -- upped exposure to the sector by $16 billion in August.
And if you were looking for a zeitgeist moment to illustrate renewed willingness to take on far-flung risk, copper-rich Zambia attracted an order book this week of some $11 billion for a new 10-year dollar bond of just $750 million at yields lower than Spain can borrow in euros.
On the flipside, safe haven bunkers of U.S. Treasuries -- not least because the latest Fed action focuses on mortgage-backed bonds -- and German bunds have seen tepid auction demand and historically low yields there are creeping higher again.
So, happy days again?
Well, an investor community braced largely for a multi-year global economic funk and mindful of the limitations of extraordinary policy actions over the past five years is still reluctant to give the all clear.
HSBC asset allocation chief Fredrik Nerbrand reckons his model still sees a 90 percent chance of a low growth global scenario over the next two years, with significant stagnation or recession risks within that.
"With the mixed data signals and oscillations in policy, it is easy to believe that there are two or three economic cycles per week," he said. "In this environment, it is hard not to let short-term thinking cloud a long-term view."
The real test of intervention yet again is whether the financial euphoria finally infects the real economy.
Even though hard evidence of that may take a couple of months, next week offers some critical pulse-taking on the reaction of business and consumers in September -- from flash purchasing managers surveys, euro consumer confidence readings, the Philadelphia Fed's business survey and Germany's ZEW investor pulse.
Any sign of the fog lifting for firms and households on top of new monetary stimuli could see an explosive end to the year.
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