Global Market Watch --- Market, Oil, QE3, ECB and China
Here summarize my latest market thoughts and observation over the past few days for your interest.
Market is more difficult Ø It is premature to gauge the effectiveness of QE3 and OMT against a backdrop in which other policy risks remain elevated Ø The true test of successes for both Fed and ECB is whether these latest actions will translate into economic growth and job creation. Ø QE3 failed its sparks on the 3rd day - Mid East tension, South China tension, US presidential election and fiscal cliff - all difficult to overcome with QEs alone Ø Lack of conviction in the market particularly when growth and demand are still difficult to be found ...
Crude was the first thing on the screens as it sold off 4% in a straight line overnight. Ø Crude closed -2.58% at $96.44. Ø A few news services reported a fat finger ahead of WTI Oct expiry, the term “Crude Flash Crash” was even thrown around. Ø Other chatter pointed to the price action being similar last year the day ahead SPR was announced. While it did bounce back from the lows Ø But I think the real issue is there sees no demands and that is the issue ... unless you are calling for a geopolitical tension to further stress (mid east) then yes ... The macro expectation is changing as central banks dig deeper into unconventional toolboxes Ø The central bank's decision to tie its controversial bond buying directly to economic conditions was an unprecedented step that marked a big escalation in its efforts to drive US UNE rate lower. Ø Based on market reactions, the effectiveness of this policy shift was received positively. Ø inflation expectations have surged higher by +20bp across the curve since the FOMC statement Ø Stock and gold prices also celebrated, which underscores that reflation is once again becoming the dominant financial market theme.
The Euro area took another important step forward over the weeks. Ø Dutch election delivered a bigger surprise, with a strong vote for stability Ø ECB president Draghi's bond buying plan has restored some control over interest rates in those parts of the Euro zone. Ø While many in the private sector harbor doubts, ECB president has to be fully signed up to the Euro's survival. Ø And with the later qualified ratification of ESM by the German constitutional court, ECB can trade the OMT going ahead for now. Ø The other important event was the publication of the European Commission’s proposals for a banking union.
Ø But all these have not turned the fundamentals in Europe. Ø There are two risks now.1) the danger of continuous fiscal backsliding, perhaps because the regions are recalcitrant or because the electorate is uneasy Ø 2) a more worrisome challenge, is the possibility that even with low interest rates, economies may still end up slipping into recession, thanks to a combination of fiscal austerity and losses of competitiveness
China’s Q3 economy has continued to decelerate Ø The full year target is now comfortably accepted by the leaders at 7.5% FY12. Ø Recent indicators suggest that most manufacturers’ output continued to deteriorate, and forward-looking signals are not yet flashing clear signs of a bottom. Ø Domestically, prices of steel, iron ore and coal all tumbled last month, highlighting the Chinese authorities’ accelerated efforts on infrastructure spending have yet to have any meaningful impact on the economy
Ø After the Fed launches QE3, there is renewed debate over that the China may opt to cut banks' RRR or rates. Ø Predicting the timing of China's monetary policy moves can be a daunting task given PBoC does not hold regular policy meetings as its counterparts in the West, and it has a track record of surprising the market.
Ø The key is earning growth. On a slowing economy, the combined sales growth of non-financial companies slowed further in FY12 and fell into single-digit territory (up only 8% yoy) while the combined net profit of those companies was down 13%.
Best Regards, |