Tag: interest rate

Market rallied ahead of ECB rate decision tomorrow

Posted by WFG – October 5, 2011

The US market had a nice rally continuing from yesterday’s. And we are waiting for the decision from the ECB on Thursday.

US China Trade Wars

This is something we have to watch out for. Since the bill has been passed and no detail plans have been reported on the news, any detailed plans that’s executed may stall the already slowing engine of China, and bring about negative consequences to the world economy.

 

Europe postponed decision on Greece bailout， aid tranche likely but not assured

Mixed signals out of Europe. Nobody wants troubled economic environment yet there have not been any real solutions announced: just rhetoric.  Why does the EFSF keep wavering without a push?

 

EU’s Barroso puts burden on the ECB to act on crisis

 ”In the last three years, member states have granted aid and provided guarantees of 4.6 trillion euros to the financial sector. It is time for the financial sector to make a contribution back to society,” he said, adding that such a tax could raise as much as 55 billion euros a year.

Any such duty is strongly opposed by the United States and Britain, which has the EU’s largest financial centre.

“Any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through,” a Treasury spokesman said.

 

More credit rating cuts and warnings of further cuts in Europe

Moody’s cut credit rating of Italy following S&P, and said that more downgrades to follow for European countries rated below Aaa.

 

 

The Market Today

Yesterday’s possible intervention serves as a strong floor to the market.

 

Yesterday the S&p500 rallied 400bps in the last 30 minutes of trading. During the day it traded through many support levels. The papers reported the FT breaking news article at 3:30 as the reason but the article referred to was just an update from an earlier article in the day. The veraciousness of the rally leads us to believe that there was intervention buying to scare short traders and this which caused a mood change. There was no real reason to sell the market below current already low levels.

 

Today many people were expecting the S&P500 to give back some of its gains but it closed 1.85% higher (8.95 points in the last 30 min =.78%)to cross the 1400 level (1500 is important resistance, 1120 and 1100 important support) last week closed at 1134.62.

 

Is this rally to be believed? Earnings from Yum and Costco today disappointed the markets because although they had good EPS and sales, their stock price implied higher growth. Monsanto reported a loss for earnings but better than expected- the stock rallied 5% but after hours down 4.98%!!!

 

Because of the large rally in the last two days, we believe we have established a weekly floor in the market. We expect to re-test support on Friday , because we believe traders want to square long position for the weekend in case of unexpected negative news from Europe.  Of important note: Shw closed above its resistance of $77 for the first time since July 25. next level is $80. IWM closed testing resistance $65 since Aug 9.

 

Tomorrow we have the ECB meeting and announcement. We are not expecting the ECB to reduce the rates and post more monetary stimulus based on the ECB’s track record and Trichet’s talk yesterday.

On Friday there will be payroll numbers. The ADP payroll numbers showed positive sign but there were reports of large scale layoffs recently. Therefore the number may come out disappointing the market.

Monetary Policy Changes in Europe, Australia and Canada

Posted by winflowfinancial – May 6, 2011

Since last year, a number of developing countries have been tightening their monetary policies. While the Fed’s FOMC meeting on April 27 marked another period of easy monetary policy in the United States, central banks of other developed countries set their monetary policies differently.

Eurozone

After a series of debates, the European Central Bank (ECB) finally decided to raise the interest rate by a quarter per cent in the Euro area. The Euro appreciated under the anticipation of further rate hikes. The anticipation was then eased as the ECB announced no change to monetary policy today (May 5).
The decision must be very difficult for ECB officials as there has to be a well balance between the wealthy and not so wealthy countries in the single currency area. On one hand the Germans are complaining about inflation and on the other hand Greece, Ireland and Portugal are still in debt trouble. President Jean-Claude Trichet said on May 5 that “We are never pre-committed and we can increase rates whenever we judge it appropriate”. And analysts interpreted that as an adjournment for further rate hike decision beyond July.

The yield on 1-year Germany government bond is currently 1.34%

 

England

Bank of England released monetary policy decision today (May 5) stating no change to the interest rate of pound sterling and the amount in asset purchasing programme. The interest rate has been kept at 0.5% since March 2009.

Since the UK economy is still showing very slow, if any growth, the central bankers have not shown any signs of tightening money supply.

The yield on 1-year UK government bond is currently 0.66%

 

Australia

The Australian economy achieved fast growth in the past two years, and the benchmark cash rate was raised to 4.75% in November last year, following a series of rate hikes started in October 2009, when the rate was 3.0%. The monetary policy has not been changed during the past half year.

In the monetary policy decision just released on May 3, the central bank believe inflation is due to “effects of production losses due to the floods and Cyclone Yasi.” And
“as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the year ahead.”

In addition, the monthly report also stated that ““The rising exchange rate will be helping to hold down prices for some consumer products over the coming few quarters, over the longer term, inflation can be expected to increase somewhat if economic conditions evolve broadly as expected.”, which analysts find hawkish.

The yield on 1-year  Australian government bond is currently 4.95%

 

Canada

The Canadian economy has recovered fast from the financial crisis. Bank rate in Canada was raised from 0.50% to 1.25% in summer 2010 and has been kept unchanged since September 2010.

The currency has been trading above par with the US dollars since the beginning of this year and is still strong. The Bank of Canada officials have not given any signal of policy changes so far. But many expect a rate hike in this summer. In addition, a majority government was the result of the federal election just ended three days ago. This government is pro business and has a strong dollar policy.

The yield on 1-year Canadian government bond is currently 1.35%