David Fuller and Eoin Treacy's Subscriber's Comment of the Day.
Wednesday 30th November 2011
European Stocks and Euro Extend Gains After Central Banks Cut Swap Rates - Here is the opening for today's important news story, reported by Bloomberg:
gained versus the dollar and the yen after the Federal Reserve and five other
central banks agreed to lower the cost of emergency dollar funding for European
banks in response to the region's debt crisis.
1. For once, the markets get a positive surprise. No doubt some pundits will dismiss it as irrelevant or inflationary, which is to miss the point. The action is highly relevant psychologically, given all the global angst expressed recently. This decision by the central banks is certainly not deflationary; it might be inflationary, and most investors regard the prospect of some inflation as preferable to the protracted deflationary slump feared by many.
2. Today's announcement is also extremely important psychologically because it shows that central banks are cooperating. Until this announcement they were perceived as pursuing their own agendas, particularly the ECB, against the background of a growing crisis.
3. The move is also another form of monetary easing. Prior to today's announcement by the CBs there was a growing concern that bank lending would dry up as we last saw following the collapse of Lehman Brothers. CBs have signalled that they are aware of the risk, and taking appropriate action. Monetary easing remains a powerful tailwind for stock markets.
Following today's action, which are the winners and losers among markets?
Winners: Equities and commodities, as short covering occurs and some long-only buyers return.
Losers: Low yielding, long-dated government bonds and the USD, as 'safe haven' buying dissipates.
"Secondary reading perhaps for FM readers. Christmas turkey equity rally underway.
here no complaints the West (Alberta/Saskatchewan) full steam ahead!
My comment - Thanks for a fascinating article, certain to be of interest to subscribers. It is posted in the Subscriber's Area along with my further comments.
Under the circumstances, I think the Fed's bailout decision was the 'lesser of evils' in terms of choices. However, while temporary secrecy may have been justifiable at the time, I think it was wrong to resist the eventual disclosure of this information. Well done Bloomberg and also the US Supreme Court. People need to know the full story, not least because measures need to be put in place to reduce the risk of a similar or even bigger crisis in future.
comment - Many thanks - the graphic helps us to
appreciate the enormity of the decision and I agree that the analysis is good.
"The opening of retail should improve sentiment. The appetite for cars is still strong and I see a lot of new ones on the road from recent entrants like bmw volkswagon fiat nissan. There appears to be enough liquidity to finance all this and car sales are a good indicator of economic activity.
"That is what i see on the ground."
My comment - Thanks for the insights.
In an economic slowdown, I do think that the RBI needs to reverse some of its economic tightening now, rather than wait for clear evidence of success in its battle against inflation, by which time the economy would also be weaker. I mentioned this during some interviews conducted by Thompson Reuters for several Asian TV Channels yesterday.
Having raised my gold stops, I reopened longs in platinum (weekly & daily) and silver (weekly & daily), paying $1559.9 and $32.505, for January and March contracts, respectively. These prices include spread-bet dealing costs.
The outlines of yet another Eurozone fiscal policy were disclosed to the media over the weekend. We think it is clear that Germany is using the current crisis environment to force budget deficit targets on Eurozone members. Unlike the 3% GDP targets agreed to at the founding of the Eurozone, these new targets are expected to be enforceable (somehow) by a centralized European authority.
view - Now the ECB needs to step up, as I have
been mentioning recently, including in this comment last Friday:
comment - In addition to the analysis, don't miss the two graphics.
commentary by Eoin Treacy
There is a strong likelihood that today's announcement represents a change to government monetary policy. Hiking bank reserve requirements have been among the primary tools of monetary tightening as the government attempted to squeeze excess liquidity out of the system, control profligate lending and prevent a bubble in the property market from inflating further. A change to this tightening bias can be viewed as positive for the stock market.
This announcement was made after the market shut in Shanghai following a weak close. The A-Share Index continues to hold above the October lows but will need to sustain a move above 2650 to break the progression of lower rally highs and suggest a return to medium-term demand dominance. The FTSE Xinhua A600 Banks Index has been ranging mostly above 8000 since August and a sustained move above 8700 would be required to indicate a return to medium-term demand dominance.
"You added an 'inverse' option about a year ago to allow an investor to flip a chart on its head. It would be nice, if once done, one could save the chart to Favourites. This does not seem to be possible.
"Also, your Irish 10 yr bond graph stopped updating mid October.....
My comment - Thank you for raising these issues which are likely to be of interest to subscribers. As mentioned previously, the Irish government has not issued new 10-year debt for at least a year. Therefore 10-year maturities are now 9-year maturities. The Irish 9-year bond yield chart can be found in the Chart Library.
To create an inverse chart, select the instrument you are interested in from the menus or using the search. I will use L'Oreal for the purposes of this example.
Once you have the chart, click on Charting, located in the charcoal bar above the chart area. Tick the Inverse (1/data) box and hit Apply.
To save your settings to your custom defined list, located in the Chart dropdown menu in the toolbar at the top of the Chart Library page, click on Charting again. Next click on Save located in the aquamarine bar at the top of the popup window. Give your template a name and hit OK. Then click on Apply. Refresh the page. Your new template will now have been added to the Chart dropdown and can be applied to any instrument you wish.
"In the favorites section there is an option for "view all". This makes it easy to view a whole series of charts. In the "international equity" section there are lists of very useful charts such as all the charts of the Dow Industrials or the Hang Seng. I am however not able to find the "view all" button. Viewing a whole predefined list is easier than clicking through charts one at a time. Can you please tell me if there is a view all button?"
My comment - Thank you for this question which others may also find of interest. At present the View All Charts option is available in all our menus except the International Equity Library. This is because the equity library resides on a separate database which we share with Investors Intelligence and Stockcube Research. Our IT people tell us that creating a "View All Charts" option for this database is a non-trivial enhancement. However, I have added your request to our list of future developments.
"Is it possible to add a "Yearly" option to the "Sample" drop down menu under the "Chart Settings" dialogue box? Thanks."
My comment - Thank you for this suggestion. At present the longest period available in the Chart Library is quarterly. The Chart Library's maximum data span is just over 50 years. At some point we would like to extend this and will include a yearly period option when we do.