After the largest one day loss in a few months, it’s comical to see CNBC Amercia spin on why the market reversed all it’s previous losses intraday. This spin consisted of Airline, KO, BA etc. earnings, USD, Beige book!. Oh Please!.
Just 24hours earlier, the sell off in reaction to China hiking was all the news and today’s it’s how great the US economy is!. The overwhelming reason for today’s reversal is the fact Shang’ made it back form losses and eked out a green day as reaction to the hike turned ‘positive’. This was the lead here at DJIM to look for a sentiment change with US markets acting ‘favourably, if we got it ..
…”.As far as PBOC, it’s really not bad at all and probably positive for their equity markets as it’s a sign of official confidence and will not cause China to slow.(definitely good for their big banks). It will be interesting to see how their markets react tonight and rest of week when their data/ inflation hits their market to get a clear read. It would not be a surprise to see US markets act favourably, if Shang puts in a green day tonight".
Of course, this leads to a Euro strengthening/ USD weakening, reversing yesterday’s big USD up day in response to the hike news. This dynamic reversal didn’t just come out of the blue air, it needed the China sentiment change to reverse the initial response of USD gains/ resources losses. Last week, said 1.43~ Euro is in the cards, we’ve probably got the early week corrective phase discussed over with. Now, with most recent developments, G20 is looking to be more of a USD weakening story.
The other overwhelming reason is MGA , one of the top influential global firms on “Macro Intelligence” for the world’s top HF’ Institutions made a gutsy QE call!. According to MGA, the FED will set forth a $500bln treasury buy program on FOMC day and leave it room to buy more in the next 6 months!. This brought back the QE2 risk trade, thus also helping USD dump. Why gutsy?. Well, we better get the 500bln in November as that is the expectation today. Back to Beige book in the afternoon, this did nothing but hurt stocks and strengthen USD as it upgraded the economy, so how it supposedly helped the rally is a mystery here.
As also pointed out, China macro data (GDP CPI etc.) coming out overnight will be important because it will likely show the hike was a vote of confidence in China and not a change in policy sign. Still, no matter the data, interpretation will be subdued now with the MGA-QE in the background.