The talk on the street is the all about the GDP numbers and the fact that the numbers were below expectations. The markets took this as an indicator the Fed will be in no rush for the exit. However, the fact the USD moved higher as well last night puts this idea in a bind and may actually suggest the disorder of the past week has produced buying opportunities across the board.
Which brings China back in to focus for the Asian region as the main driver of the day.
Malaysia, Singapore, Taiwan, Australia and South Korea are all heavily invested on a growing China in some capacity. Chinese consumption of goods for these countries is the life blood of the region. If this was to slow, foreign investment in the region’s markets would dry up.
Thankfully the PBOC’s decision to calm the money markets nerves have worked so far, with the interbank rate continuing to slide. Since reaching a decade high of 12.85%, the rate has fallen right back and last night the overnight rate fell another 40 basis points to 5.6%.
As we have been saying, there is no doubt that the central government is trying to squeeze out speculative lending which has seen credit expansion outpacing economic growth. The fact the PBOC is calling on ‘commercial banks to improve their liquidity management’ suggests they are looking for structural adjustments to avoid a massive credit crunch sometime in the future. This adjustment will cause gyrations in the short term.
It has been interesting to watch trading in the Chinese markets - the swings are large, violent and sporadic. Yesterday the SSEC moved through 36 point swings to finish the day lower by nine points, while the Hang Seng was a little more ordered and rallied strongly in the afternoon. This helped the ASX finish strongly, having traded sideways for 90 minutes.
Ahead of the open today, we are calling the ASX 200 up 29 points to 4710 (+0.62%). We are already getting questions about the moves in Canberra last night. In short, the markets won’t react to this change until the election is called. Until this time it will remain in a state of flux from a market perspective.
BHP saw the immense short selling it has experienced over the previous days come to an end yesterday and jumped 2.62% on the unwind. Today however looks like being a different story as BHP’s ADR is suggesting the security will be under short pressure again; set to drop 37 cents (-1.19%) to $31.25 as iron ore slid further down 0.2% to $113.80.
Tomorrow is the end of financial year and we will be looking at the best and worst performers of FY 13 – it will be very interesting to see the results.