Stock Market Analysis: 09/12/08
The official Xinhua report is here and its headline suggests some worry at the economic growth rate. Both Australia and Canada are resource-based economies, but Australia is more sensitive to Chinese growth while Canada is more sensitive to American growth. Moving across the Atlantic, the pattern of the European bourses bear an uncanny resemblance to the American one. In addition, the longer term chart of the 10-year yield shows that bond yields remain in a downtrend and the recent uptick looks like a flag pattern, which is a continuation pattern indicating that bond yields are likely to fall further. As well, David Rosenberg (via Pragmatic Capitalism) indicated that recent sentiment polls showed that there were virtually no bond bulls around. The chart below of the STOXX 600 shows the index to be above its 50 and 200 day moving averages, though there is some work for the bulls to do as the index is approaching overhead resistance. A good measure is the relative performance of the Australian unique boutique market (EWA) to MSCI All-Country World Index (ACWI) as most of Australia's raw material exports go to China. China 3x Bull ETF (YINN) - YINN is now soaring back above $17 and is red hot.
“China needs to cement its domestic economic growth momentum and guard against potential risks in financial sectors,” seems to be the key line, from the third paragraph, although it goes on to point out that Q1′s 7.7 per cent growth that had many China watchers worried was in fact higher than the 7.5 per cent official target. In those Eurozone countries where the monetary transmission mechanism is still working normally-Austria, Finland, France, Germany, and the Netherlands-the GDP-weighted-average inflation rate is 1.8%, right near the ECB’s target. France, with 1.1% inflation and 10.8% unemployment, would appear a strong candidate for a rate cut, but not the others. Germany has 1.8% inflation and only 5.4% unemployment. Assuming that there is a rate cut, could the market buying the rumor and selling the news? But the ECB will have to willfully ignore its price-stability mandate if it is to justify a rate cut right now, and it will almost certainly need to apply more radical tools if it is to aid the south quickly.









