Risk sentiments stepping up

Risk sentiments have improved noticeably for a couple of weeks now, although I feel the rebound is somewhat jerky and lacks fundamental underpinnings.


European and US markets finished strongly on Friday. S&P managed to close firmly above key 2000, and achieved its highest close for the year. The VIX index dropped 8.6%, reflecting the risk uptake in the markets. Banks led the way for both markets. European investors digested ECB action, which is still clearly net positive in terms of monetary support.

The investors seemed more confident that there is little chance of a March Fed hike this week, but they are anticipating some sort of guidance at the press conference. For now, the odds of a June increase are increasing, with the Fed funds futures market pricing in a 49.6% implied probability last Friday, compared to 40.1% in the previous week.

As a result, Asia is looking up today. Japan and Australia are already heading higher. A softer USD may also firm up Asian currencies, and kept euro and yen supported.


China speak

Over the weekend, a bunch of Chinese data was released and PBOC governor Zhou also held a press conference, unleashing a charm offensive lately to fend off pessimism. For February, aggregate financing and new yuan loans significantly undershot consensus at CNY 726.6 billion and CNY 780.2 billion respectively. M2 money supply grew at 13.3%.

Industrial production and retail sales on a year-to-date and year-on-year basis also below expectations at +5.4% and +10.2%. A bright spot is the urban fixed asset investment (FAI) data, which showed a stronger than expected growth at 10.2%. Note that China doesn’t release data for urban FAI as a combination of January and February.

Zhou Xiaochuan, the governor of the PBOC, stressed that monetary policy will stay prudent with a slight easing bias. According to Bloomberg, he said, “Excessive monetary policy stimulus isn’t necessary to achieve the target. If there isn’t any big economic or financial turmoil, we’ll keep prudent monetary policy.” Furthermore, He added that there is no basis for continued yuan weakness, emphasising that China will not seek to boost exports through a weaker yuan.

Meanwhile, new CSRC chief Liu Shiyu pledged to intervene decisively if necessary to stem a stock market rout, similarly to the one we have seen last June which wiped out $5 trillion. He said it is too early to consider withdrawing state rescue money from the market, suggesting that Chinese equities would remain supported for a while longer. Circuit breakers are also not likely to return in the next few years.


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