MORNING BRIEFING: China’s raises reserve requirements, surprises markets.

[RTFX-Trading]

MORNING BRIEFING: China’s raises reserve requirements, surprises markets.

What’s new:
China: Google may quit China because of censorship.
China: Surprise reserve requirement rate hike!
United States: Fed officials say jobless rate will stay high for some time.
United States: Fed’s Plosser says Fed can’t wait for ‘acceptable’ unemployment to raise rates.
United Kingdom: MPC’ Sentence hints at hikes.
United States: Obama to announce TARP fees on banks on Thursday.

Today:


Overnight Rates and Indices:
EURUSD: 1.4514 – 1.4456.
USDCHF: 1.0211 – 1.0164.
GBPUSD: 1.6234 – 1.6136.
EURJPY: 133.82 – 132.98.
USDJPY: 91.36 – 90.91.
DowJones: 10’627.26 -0.34%
NASDAQ: 2’282.31 -1.32%
S&P 500: 1’136.22 -0.94%
Nikkei: 10’735.03 -1.32%.
Shanghai: 3’172.65 -3.09%,
Gold: $1’128.8 -0.01%
Crude Oil: $79.73 -1.30%
 
Comments:

China surprised the markets in overnight trading as it raised its reserve requirements by 50bps to 16% for large institutions and 14% for smaller firms. Asian stock markets were hit hard by this news as investors fear the move could slow future purchases of natural resources and goods from Asia. The Yen strengthened shortly after this news as investors sold their higher yielding asset positions. In the meantime Google’s said it may leave China due to the latest censorship and cyber attacks on rights activists using Google email.

Meanwhile the US Dollar remained steady overnight due to lack of data, but some hawkish remarks have softened the negative sentiment. The Fed’s Plosser said that he sees ‘no reason’ to reconsider Mortgage-backed securities purchases and that the current economic recovery ‘is sustainable’. He added that the Fed will have to raise interest rates as the economy improves further or risk losing the public’s confidence in its commitment to keeping inflation low and stable.

Since the market’s failure to reach and break 1.4571 (38.2% Fibonacci retracement of the move from 1.5141 to 1.4217) in EURUSD, we will be looking for a move down to retest the 200 day SMA in the coming days which is at 1.4259 today.

Have a nice day.

Emman Xuereb
Trading Desk
RTFX Ltd
Risk Disclaimer