There has been a lot of news and speculation out of China over the weekend about the health of its economy and the potential for stimulus. The PBOC eased some of its mortgage rules surrounding down payments to help shore up property markets.
Apparently one PBOC member warned that growth may not reach 7% (which should not come as a surprise any more) while another apparently warned on falling inflation and rising deflation risks and hinted toward more rate cuts and quantitative measures (although really between high rates and reserve requirements, the PBOC has a ton of ammunition to go through before even thinking about QE). It seems though that some people started getting carried away as the PBOC had to deny rumours of a press conference on stimulus.
All of this news and chatter helped to give the Hang Seng a boost overnight and some of the stimulus speculation appears to be helping indices
in Europe and the US this morning as well. I’m not completely convinced though and think that today’s advances may be more of a trading bounce. If today’s rally is China driven, it may not last long.
Here’s why. A lot of other markets have taken talk of more aggressive stimulus in China as a sign its economy may be heading off a cliff. Iron Ore has fallen to a new 52-week low and both copper and crude oil are trading lower as well as the prospects for resource demand become even bleaker. Australian stocks and AUD, a major exporter are getting hit particularly hard with both taking losses of over 1%, while NZD hasn’t fared much better.
USD has moved back into top dog spot in currencies today, knocking gold for a 1% loss and sending EUR, GBP and JPY to significant losses as well. Core PCE inflation rose in this morning report which is important because this is one of the measures the Fed uses when deciding monetary policy. This measure along with deflation subsiding in Spain and strengthening industrial prices in Canada combine to confirm what several central bankers have been saying which is that the impact of the oil price crash on headline inflation is temporary and that inflation pressures may increase in future. This keeps the Fed on track toward interest rate liftoff later this year, helping the greenback to rebound.
Later this morning, EUR could be active on the ECB’s weekly QE purchases update. The ongoing issue of what to do about Greece may also continue to keep the single currency active.
There have been no major corporate announcements this morning.
Economic reports released overnight and this morning include:
US personal income 0.4% vs street 0.3%
US personal spending 0.1% vs street 0.2%
US PCE core inflation 1.4% vs street 1.3%
Canada industrial prices 1.8% vs street 0.9%
Canada raw material prices (6.1%) vs street (4.5%) and previous (7.7%)
Germany consumer prices 0.3% as expected
Spain consumer prices (0.7%) vs street (0 9%) and previous (1.2%)
Japan industrial production (2.6%) vs street (0.6%)
Economic reports due later today include:
9:45 am EDT ECB QE purchases weekly update
10:00 am EDT US pending home sales street 8.7%