Perhaps the USA senate needs to look up the meaning of the word “diktat” before attempting to issue the same versus one of its major trading partners. A diktat is a harsh penalty or settlement imposed upon a defeated party by the victor, or a dogmatic decree. The senate would have been better employed studying the meaning of Yin Yang in order to harmonise relationships with one of its major trading partners, a concept which believes that there exists two complementary forces in the universe. One is Yang which represents everything positive or masculine and the other is Yin which is characterised as negative or feminine. One is not better than the other. Instead they are both necessary and a balance of both is highly desirable.
No sooner is the Senate’s ‘whipped up into a pitch fork wielding hatred‘ versus China formalised into legislation and China retaliates. The U.S. Senate approved its controversial bill on Tuesday aimed at forcing Beijing to push the yuan higher versus the dollar, which supporters argue would reduce a U.S. trade deficit with China of more than $250 billion. Instead the yuan fell versus the dollar on Thursday after China’s central bank set a sharply weaker mid-point which traders said signalled displeasure with the U.S. Senate’s approval of a bill pressing it for greater yuan appreciation. Spot yuan weakened to 6.3805 versus USD in late morning trade from Wednesday’s close of 3.3585. It’s still appreciated 3.28 percent since the start of this year and 6.99 percent since its peg versus the dollar was removed in June 2010.
China’s exports rose 17.1% in September from a year earlier, compared to a 24.5% rise in August, according to figures released Thursday by the General Administration of Customs. Analysts polled by Dow Jones Newswires had a median forecast for a 20.3% rise. Other data showed imports rising 20.9% from a year earlier, easing from a 30.2% rise in August, and short of the median forecast for a 23.7% rise.
Has the global economic ‘vista’ changed so much in one week to justify a rally in the main markets? The US S&P 500 has fluctuated between 1,074.77 and 1,230.71 since Aug. 5th having now rallied the most in 31 months. The benchmark measure rose 1 percent yesterday, giving it a 9.8 percent increase over seven days, the most since March 2009, according to data compiled by Bloomberg. Indexes for 37 out of 45 developed and emerging markets have fallen circa 20 percent this year from their peaks, 20 percent falls are often the common definition of a bear market. The S&P 500 was 21 percent below its highest closing level of 2011 on Oct. 4 before the 12 percent rally through to yesterday’s close.
As news that the potential fifty percent haircuts mentioned by the EU yesterday may in fact harden and translate into actual policy begins to be absorbed into the market place the relief rally appears to be waining. This is a potential huge write down and together with the other milestones suggested by EU president Barroso yesterday may take the wind out of the sails of any further rally.
Focus will now be back on Greece whose plight simply worsens as each day passes. The insurmountable debt mountain and insoluble problem cannot disappear through soothsaying and continual platitudes from all directions. Greece’s debt mountain is forecast to climb to 357 billion euros this year, or 162 percent of its annual economic output. The euro zone government have failed so far to come up with a convincing plan as to how to cope. The worry now exists that political leaders will disappoint the markets again at the European summit later this month and at the G20 summit Sarkozy will host in Cannes on November 3-4. Just how much talk a plan, for a plan, to revise the plan investors can tolerate remains to be seen. However, there is very little metal left on the can to be kicked down the road and that road is surely nearing its end.
Whilst concerns with regards to the solvency of certain French banks may have taken a back seat and been overlooked due to bigger issues these concerns will no doubt re-appear. Both the French and Italian economy are still precipitous, the fragility of Italy (one of the ‘founder’ members of the inglorious PIIGS) is highlighted by Italy’s President Giorgio Napolitano, who expressed his deep concern on Wednesday over the ability of Prime Minister Silvio Berlusconi’s government to deliver economic reforms. The Italian leader came under renewed pressure to step down last week after suggesting his party rename itself with a vulgar slang term for female genitalia, he suffered further humiliation and embarrassment on Tuesday when failing to pass a key budget provision. Berlusconi plans to address parliament on Thursday, with a confidence vote likely the following day.
Asian markets closed up in overnight/early morning trade. The Nikkei closed up 0.97%, the Hang Seng closed up 2.34% and the CSI closed up 0.67%. The ASX closed up 0.96% to leave it 8.12 % down year on year. In Europe the STOXX is currently down 1.31%, the FTSE is down 0.91%, the CAC is down 1.19% and the DAX down 0.93%. the SPX equity index future is currently down 0.7%. the euro has trimmed its gains versus the majors over recent days, falling versus the dollar, sterling, yen and Swissy.
The major economic release to be mindful of on NY opening is the weekly job numbers from the USA department of labour, a Bloomberg survey forecasts Initial Jobless Claims of 405K. A similar survey predicts 3710K for continuing claims, fairly static numbers vis a vis previous reports.