Tuesday, May 29, 2012
Market Overview
Date 30/05/2012
The boost from China stimulus talk was rather brief as China ruled out the chance for another large-scale stimulus program. Also, sentiments are weighed down by worries on Spain's banking sector. European equity indices are mostly flat at the time of writing while Euro remains soft in range against dollar and yen. US futures, though, point to a mildly high open. Commodity currencies' recovery also lost momentum ahead of US session. Dollar index is staying firm above 82 level despite the retreat earlier today.
Spanish yield spread against German bund climbed to another record higher today. Prime minister Rajoy said yesterday that a European rescue for Spanish banks is not required. But he then contrasted and mentioned that the ESM would recapitalize struggling banks directly. Also, as reported before, Spain is considering to inject government debts into Bankia, which would in turn use that to seek ECB funding using the government debt as collateral. Markets are taking that as a sign of difficulty in access to market funding. Spanish 10 year yield continues to press 6.5% level today.
Italy sold EUR 8.5b of 183-days bills today. Yield jumped sharply to 2.104%, up from April's 1.772%. Bid-to-cover ratio dropped to 1.61 times, down from prior 1.71 times. Overall, the auction was seen as successful even though not spectacular. More important auctions of 5 and 10 year bonds will be carried out tomorrow.
It is likely that Ireland will pass the European fiscal pact on the referendum on May 31 as the latest polls showed that 60% of the voters supported the deal. Unfortunately, the market anticipates that the country might not be able to tap public funding later this year as the government planned. That means, the debt-ridden peripheral country in the Eurozone, despite its efforts in meeting the fiscal target and the return to growth in 2011, may need further bailout from the EU, the IMF or other international sources besides the 67.5B euro borrowed. More in Ireland's Ability to Access Bond Markets Not Certain although Fiscal Pact Likely Approved.
Earlier today, it's reported that China would implement measures amounted from RMB 1-2 trillion to bolster growth. The forecasts were indeed made by Credit Suisse on Monday. The bank also anticipated a -25 bps reduction in the policy lending rate, but no cut in the deposit rate. Moreover, bank lending is expected to rebound in June and July to about RMB 1 trillion, before trending down in 2H12. Credit Suisse's growth forecast for 2012 is 8.0%.
However, the official Xinhua News Agency later stated that the intention of Chinese government is "very clear" and it will "not roll out another massive stimulus plan to seek high economic growth". That is, “the current efforts for stabilizing growth will not repeat the old way of three years ago." Some Chinese analysts noted that China's stimulus program will be small, and modest at best.
Meanwhile, the Chinese government announced that direct trading of Renminbi against the Japanese yen will begin on Friday, marking the first time that China allows a major currency other than USD to trade directly against the RMB. The rate of RMB/JPY would be based on the average price of offers made by registered dealers before the opening of the market each business day. The move is a signal that the Chinese government has taken a step further to transform the RMB to a global currency.
Expectation for today's market (30/05/2012)
USDINR- Open Gap up
EURINR- Flat or slightly will open up
GBPINR- Slightly will open up
JPYINR- Slightly will open up
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