Today was a big ‘risk off’ day. With the perceived decision by China to try to curb bank lending and control the pace of credit growth this year, amid rumours that they could raise the actual lending rate as soon as this week, stopping yesterdays late ‘risk on’ rally in it tracks during the Asian session. This spilled over to Europe and NY, with crude getting hammered on lesser demand concerns and sparked a ‘fear spike’ (VIX up 10% today at one stage), all this helping the dollar and yen northward. With the Euro hampered by budgetery issues in Ireland, Portugal and Greece still polluting news flow.. coupled with the negative German PPI number this morning, the EURUSD and EURYEN just took a beating. They really didn’t stand a chance.
UK employment printed better than expected, and the Pound did weather the storm relatively well. These UK, Eurozone and Dollar themes we have seen throughout the last week or so, and i dont think they are going to go away anytime soon.
Overnight we will get some significant data out of China (9pm E.S.T), GDP & Retail sales amongst others.. if these come in hot, the market may choose to remain spooked by the spectre of further fiscal tightening from the PBOC and we may get an action replay of todays events, overnight at least. It is possible the market has just been adjusting to the prospect these potential PBOC moves before the fact. Its a tough call that I don’t really want to make.
Markets have always ultimately proved resilient when we have seen these bouts of risk aversion and i really dont see that changing because of Chinas’ foresight in trying to reign in its’ economy from overheating. How long will this round of risk aversion last? I dont know, but I dont think the low yeilds from having your investments held up in ‘safe havens’ like the U.S and Japan will satisfy bolder investors for very long.
Manufacturing data out of the Eurozone and the States amongst more corporate earnings data tomorrow.
Good trading.
C.
