China remains the swing factor
Better than expected earnings from Alcoa (partially citing China) and Chinese car sales rising 48% y/o/y in June are helping to lift commodities and in turn global stock markets. On the AA call, the CEO made an interesting comment about China according to Bloomberg, “One of the things that the Chinese government very smartly does these days is that they are stimulating people that it’s good to not have too much savings and to buy new cars and get a new air conditioner.” The BoE left rates unchanged and kept its quantitative easing program in place to buy a total of 150b pounds of gilts which will be complete next month. They will review it again at their August meeting. Some thought they would increase the amount and Gilts are down sharply in response as is the Pound. US Treasuries are following on the downside and the reaction highlights the risk with QE. With the Yen at 5 month highs, a Japanese official said excessive currency moves is undesirable. The Nikkei was lower due to the Yen spike. Initial Jobless Claims are expected to total 603k vs 614k last week. Continuing Claims are expected to rise modestly. June comps so far look weaker than expected.
July 9th, 2009 at 8:26 am
I would advise anyone who wants to short China (as they should) to wait at least another week. The latest government-doctored economic reports will be out soon and will be belived by the gullible, probably pumping the Chinese indexes a bit more. The current boomlet over there is all being fueled by wild lending backed by the central government. Since the export businesses that fueled China’s growth are basically bankrupt because of lack of demand, much of the lending is going into stocks, commodities and real estate in a replay of the US bubbles.
The only question is how long the facade can be maintained. I have read that there are growing calls to cut back lending and raise interest rates in China, actions that were fatal to the US bubble.