China To The Rescue?
At least that’s the hope and the rumor du jour that is floating around the marketplace—that China is going to step in and help support the Euro zone by buying some of this debt. Let’s face it; it’s about time. Chinese currency reserves are so massive that they can afford to take risks and put their capital to work in some more speculative areas and this certainly would bolster their sphere of influence.
Trichet will be speaking today on the state of the EU economy at the G-8, and there was no other significant news this morning. In the UK, an index of services came in lower than expected, thought the Pound is generally higher as some of these minor fundamental data points are not enough to derail the inflation picture.
Later this morning, the US GDP revisions will be out with the expectation that it grew 2.2% annualized for last quarter, but keep an eye on personal consumption data as the consumer represents some 70% of GDP. Initial jobless claims are expected to show another 400K people lost their job last week.
Oil is slightly lower but just above $100, and stocks are set to open higher here in the US which means we have some initial Dollar weakness to start the day.
In the forex market:
Aussie : The Aussie is mostly higher on risk taking this morning after Asian equities were higher in the overnight session. Private capital expenditure figures came in better than expected, showing signs that investment is alive and well in Australia.
Kiwi : The Kiwi is higher across the board for the second day as expectations are rising that the RBNZ will be the next major Central bank to raise interest rates. Bets had been on Canada for some time, but inflation expectations in NZ are higher so money is flowing from the Loonie to the Kiwi.
Loonie : The Loonie is lower across the board as money flows move to the Kiwi on deteriorating economic conditions and interest rate expectations for NZ. In addition, oil prices are slightly lower, adding additional pressure on the Loonie.
Euro : The Euro is mostly higher on the speculation that China will step in to buy Euro zone debt. A G-8 meeting is taking place and various ECB officials led by JCT will be speaking today. Tomorrow will bring German CPI and retail sales data.
Pound : The Pound is mostly higher despite a lower than expected index of services figure that was reported. The overall debate of growth vs. inflation is much larger than minor individual data points, though those could add up if they all are negative.
Dollar : GDP figures are due out later this morning but I am actually watching the personal consumption data as I feel it is a more important expression of what is truly happening in the economy. If consumption is down but GDP is steady or higher, that probably means that government spending has made up the difference and this ultimately adds to our deficit which is a net negative.
Yen : The Yen is mostly weaker ahead of tonight’s CPI data which is expected to show positive inflation. I can’t remember the last time I have seen positive CPI data from Japan, as we are all aware of the deflation they have been experiencing. While this likely won’t affect monetary policy, it could be a time when the BOJ could sneak in some monetary easing on Yen strength if it happens.
Remember—buy the rumor, sell the news. And it appears that this is what is happening today. While it makes perfect sense that China should come to the rescue, it doesn’t necessarily mean it is a done deal.
As investors, sometimes we need to take on speculative positions in order to achieve superior returns. No risk, no reward as the saying goes.
Think of it like the currency market—you can achieve out-sized returns as the market is more speculative, but no one ever suggests that you should commit all of your money to it. By taking just a portion of your overall investable capital, you can give yourself an opportunity to hit it big.
So the Chinese should heed this lesson for not only could they help save the health of the global economy, they just might make some money in the process!
Similar Posts:
