Rich Asians to the Rescue
- Posted by DynamicHedge
- on June 7th, 2012
I knew the Asians would step in eventually. Asian countries (China) are becoming crazy rich so it’s only natural they wish to augment the business cycle via central bank policy. We’re all Austrians until there’s hundreds of millions of personal fortune at stake.
China cut borrowing costs for the first time since 2008 and loosened controls on banks’ lending and deposit rates, stepping up efforts to combat a deepening slowdown as Europe’s debt crisis threatens global growth.
The one-year lending rate declines by a quarter percentage point today to 6.31 percent, the People’s Bank of China said in a statement yesterday. The one-year deposit rate drops the same amount, to 3.25 percent. The extra leeway banks will get to determine rates at variance from the official setting was called a “milestone” by UBS AG.
The move, before China reports inflation, investment and output figures tomorrow, may signal that the economy is weaker than the government anticipated. Policy makers across the globe are also girding for a deeper impact from Europe’s woes, with Australia and Brazil also lowering rates in the past eight days.
“This will be the beginning of a rate cut cycle and there will be at least one more reduction this year,” said Shen Jianguang, a Hong Kong-based economist with Mizuho Securities Asia Ltd. who has worked for the European Central Bank. “The data to be released over the weekend must be very weak and inflation must have eased sharply.”
European stocks rose on China’s announcement, as did American shares before most closed lower on a late-day slump in banks and technology companies. The MSCI World Index closed up 0.6 percent for a third day of gains.
The question now is, can we hold the gains and build or is this just back and fill before rolling over? A move this big (63 points off the bottom) is either a violent short squeeze or the kick-off of a monster rally. If this is the latter then there will be plenty of points left to be made on the upside. Relax, you haven’t “missed” anything. My indicators are still on the negative side and will take weeks to go positive.
Below is the most sensitive version of the MAMO oscillator last seen HERE.
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DynamicHedge is an equities, futures and derivatives trader based on the West Coast. He runs a long/short opportunistic relative-value strategy within a proprietary trading group. More