This morning Asian stocks swung between gains and losses as raw material producers fell on concern a cash crunch in China will curb growth in the world’s second-largest economy. Japan’s Topix index erased losses as the yen fell. The JPY climbed this morning above 98 but eased in later trading to 97.35.
On Monday Wall Street fell, sending the S&P’s 500 Index to a nine-week low, after Chinese equities entered a bear market amid concern a cash crunch will hurt growth and as investors weighed the impact of a possible reduction in the Fed Reserve’s monetary stimulus.
Regardless of which side of the Atlantic or Pacific, Chinese data and credit dominated the markets. China’s biggest squeeze on credit in at least a decade is increasing the chance that Li Keqiang will be the first premier to miss an annual growth target since the Asian financial crisis in 1998. GS and China International Capital joined banks from Barclays to HSBC in paring their growth projections this year to 7.4%, below government’s 7.5% goal. The cuts followed a tightening in central bank liquidity that left the overnight repurchase rate more than double the year’s average. Chinese credit woes weighed heavily on the AUD and the NZD today, with the Aussie falling to 0.9206 and the kiwi at 0.7716. The combination of Chinese and US stimulus policy changes are affecting the global market place. The US dollar continues to climb trading at 82.68. The Fed Reserve under Chairman Bernanke has committed itself to a monetary strategy for this year and beyond that will be difficult to undo under a new chairman. Under Bernanke’s leadership, the Fed has set out clear markers for the conditions that need to be met to moderate and eventually end its asset purchase program and then begin increasing interest rates. The dollar index held a four-day gain amid declines in Asian stocks and prospects for the Fed Reserve to pare back bond buying as the economy strengthens.
The euro is trading at 1.3114 slowing easing down, with little economic data other than German business climate and Ifo prints on Monday, which were pretty much as expected the euro is trading on a negative bias with low volume and momentum. Traders are trying to assess comments from the IMF and a recent FT report that said there is a growing hole in the Greek budget which needs to be filled by eurozone funding; otherwise the IMF will withdraw its support. In the meantime, the IMF has issued warning on the French economic situation, which is predicting dire consequences for France. Across the border in Italy, ex-Prime Minister Berlusconi has been sentenced to 7 years in prison, which might cause some political turmoil.
Today’s focus will be US data including durable goods and housing data, with both expected to exceed forecasts and also give the FOMC additional support with their plans to taper stimulus in the short term.