Archive - Nov 30, 2011

Some important economic data upcoming, which will certainly be drowned in the headline rush, now that Asia is once again on the radar.

Just in time for the Chinese 50 bps RRR cut, we get a note from Albert Edwards reminding us just why this desperate and sudden move from China comes: "We have identified a China hard landing as one of the biggest investment shocks next year." Not only that, but the SocGen strategist takes a long overdue swipe at the world's most ridiculous concept, Jim O'Neill's BRIC debacle: "Despite recent poor  performance investors still seem to favour EM and the BRICs. My good friend and former colleague Peter Tasker came up with an alternative for the widely (over) used BRIC acronym - Bloody Ridiculous Investment Concept." It appears that the PBOC was well aware of this re-definition when it decided to announce to the world that it has started easning once again last night.

• China Cuts Reserve Requirement for Banks as Europe Crisis Threatens Growth (Bloomberg)
• Don’t Count on China Easing Curbs: PBOC Adviser (Bloomberg)
• Germany Told to Act to Save Europe (FT)
• Fed Policy Makers Sharpen Differences Over Bond-Purchase Policy (Bloomberg)
• European Nations Pressure Own Banks for Loans (WSJ)
• Govt tries to soothe companies' concerns (China Daily)
• S&P Rates China Banks Higher Than U.S. Rivals (Bloomberg)
• Republicans Make Demands on Payroll Tax Cuts (FT)
• Eurogroup Set to Fix EFSF Leveraging Rules, Deal With Greek Aid (Reuters)

It appears that China has already forgotten its close encounter with inflation as recent as a few months ago leading to assorted riots, and is instead far more concerned with the collapsing housing market. As a result it just announced a 50 bps reserve ratio cut, well in advance of when most commentators thought it would happen, on what is now the start of a monetary policy loosening cycle. The kneejerk reaction is for futures to surge and gold to spike, and crude to pass $100, even as the EURUSD was once again drifting lower overnight. And while this is beyond bullish for commodities, we doubt equities will remain bid unless Europe mysteriously fixes itself overnight too. Which won't happen. More from Reuters: "China's central bank cut the reserve requirement ratio for its banks on Wednesday for the first time in nearly three years to ease credit strains and shore up activity in the world's second-largest economy." Naturally, this ties Bernanke's hand even more as Chinese inflation will now be stoked internally in addition to importing any excess inflation to be generated by the Chairman, likely leading to an even faster spike in global inflation the next time we get US-based quantiative easing. Look for Chinese-based purchases of gold to surge.