PBOC effect fades fast as traders react to political, earnings and central bank developments
The strong stimulus driven gains of late last week have fizzled out overnight and into this morning with skepticism about what monetary stimulus really means about the Main Street economy and resource demand/corporate earnings prospects no longer contained to the US.
The recent round of rate cuts from the People’s Bank of China which sparked rallies in Europe and North America last Friday has new fizzled out. Sober second thought over the weekend from Asia Pacific traders left Mainland China indices up only slightly when they had a chance to respond Monday while Hong Kong traded down slightly.
This suggests that this was seen as a combination of a catch up move to replace last summer’s volatility driven capital outflows and possibly a sign of deeper problems. Press reports over the weekend have been mixed with China’s government apparently backing away from its 7% growth target, the possibility of more rate cuts and talk the Yuan could be getting close to inclusion in the IMF’s Special Drawing Rights (SDF) basket next year.
I don't usually include direct links to articles in the press but this one over the weekend I find quite striking as it shows how just how fortunate Canada is to come out of last week’s election ended with a majority government and not a minority government/coalition showdown between parties.
In Portugal’s recent election, the ruling party lost seats and slipped into a minority while the two opposition parties (who combined hold a majority of seats) have formed a coalition to try and take over but have been blocked. It’s turning into a big mess especially with the opposition parties looking to take the country out of the Euro.
Poland’s weekend election also showed Euroskeptic forces registering strong gains. The Law and Justice Party won an outright majority in the legislature with 242 seats while Civic Platform dropped to 133. Meanwhile, Spain’s government has scheduled its long expected election for December 20th, and later this month at an EU summit, UK PM Cameron is expected to present his negotiating demands for keeping the UK in the EU heading into a referendum on the matter likely in 2016. PLN has dropped moderately on the news likely due to common uncertainty over what a change in government might bring but it’s down about the same as CHF today against USD so it’s not a huge drop.
The potential that Greece may have only been the beginning of Europe’s political troubles appears to be playing out in currency markets today. USD is giving back some of last week’s gains in a normal trading correction but it’s Asia Pacific and resource currencies that have been making the most hay from this with AUD, JPY, NZD, NOK and CAD the top gainers. EUR and CHF have been dragging behind their peers with the Swiss currency impacted by reports the SNB will consider what to do about any changes to ECB QE or monetary policy at SNB meeting on December 10, which comes about a week after the next ECB meeting.
As the day and week progresses, trading is likely to continue to be impacted by earnings reports (Apple and Twitter report Tuesday afternoon) and speculation on what kind of signalling may come out of the FOMC meeting as a rate hike this week looks unlikely with the US government about to hit its debt ceiling.
Xerox $0.24 vs street $0.23
Significant announcements released overnight include:
Germany IFO business climate 108.2 vs street 107.8
Germany IFO current assessment 112.6 vs street 113.5
Germany IFO expectations 103.8 vs street 102.4
UK CBI total orders (18) vs street (9)
UK CBI business optimism (12) vs street 2
Upcoming significant announcements include:
10:00 am EDT US new home sales street 550K