Overnight Sentiment: Subdued As PBOC Easing Hopes Fizzle

Tyler Durden's picture

The market has reached a level where only recurring hopes and prayers of incremental monetization and easing by one or more central banks have any impact. For the past two months it has been primarily the ECB which continues to talk a lot but do nothing, with infrequent and false speculation that the Fed will step in during the annual Jackson Hole pilgrimage in 10 days and add more reasons to send gasoline to all time highs for this time of year 2 short months ahead of the election. It won't. Which always left the PBOC. However, as we have repeatedly explained, concerns about food inflation have and will keep China in check for a long time. The market finally appears to have grasped this last night, when the regional Asian markets reacted accordingly, and the dour theme has merely carried over into Europe and now the US, especially following the ECB's sound refutation of the Spiegel fishing expedition.

From Bank of America.

Asian equity markets closed broadly lower overnight as concerns mounted that China would not ease monetary policy despite slowing economic growth. The Hang Seng and the Korean KOSPI edged down by less than 0.1%. The Shanghai Composite slid 0.4%, whereas the Nikkei inched up by 0.1%. The MSCI Asia Pacific index summarized the slightly softer tone by falling 0.1%.
In Europe, however, equity markets are inching higher as leaders prepare to meet this week and there are reports that the ECB could set interest rate thresholds for a bond-buying program. The Euro Stoxx 50 is up by 0.5%, with the German DAX not far behind, at +0.4%. The Spanish index is also up by 0.5%, but the FTSE 100 is down by 0.2%. Back home, the S&P500 futures point to a 0.1% tick higher.

Moving over to bondland, 10-year US Treasury yields are up by about 4 basis points. Yields are now at the highest level since May. In Europe, Spanish 10-year yields have dropped by a significant 24 basis points, sliding to the six-week low of 6.142% in reaction to ECB speculations noted above. 

The US dollar is moving sideways against major trading partners, while in commodities markets, oil prices are trading close to the highest level in three months. Brent prices are largely unchanged from Friday's closing, at $115.98. Gold is down $1.50, to $1614.9. 

Overseas data wrap-up

Chinese new home prices edged up in July. The average of new home prices of the 70 surveyed cities advanced 0.1%. The number of cities with new home prices up sequentially doubled to 50 in July. Moreover, property sales continued the upward momentum. The yearly growth of new home sales in value (volume) terms accelerated to 26% (13%) from 7% (-3%) in June. That said, property fixed asset investment growth decelerated to 9.6% yoy in July from 11.8% in June, significantly lower than 16.6% in 1H12. 

All told, the current mix of the home price rebound and a property FAI growth slowdown poses a dilemma to policymakers. Any liquidity-easing measures intended to make up for the property FAI slack could potentially stoke up home prices. This is partially why the PBoC has refused to cut RRR and is instead replacing RRR cuts with reverse repos. Government boosting of infrastructure FAI may not offset falling property FAI and export growth. We expect 2012 and 2013 GDP growth to come in at 7.7% and 7.6%, respectively.

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GetZeeGold's picture



Momma don't take my Monetization away!!!



slewie the pi-rat's picture

they have shut the dour on the margin's hand that feeds them

[msBo hears about her verdict today also]

fonzannoon's picture

Today is a good day to watch the US 10yr. If the market backs off and yields keep inching up then something is up.

dannyboy's picture

Very good point, that I reckon is the point in which the snowball, however small starts rolling down the hill.

fonzannoon's picture

“It’s not fair to scapegoat public employees and pensions for the financial woes of our cities,” Rob Feckner, the chairman of the Calpers board, wrote in an Aug. 8 op-ed in the Sacramento Bee. Feckner is an executive vice president of the California Labor Federation, which represents 2.1 million unionized workers, about half of them in government.

“The real culprit is the economy and housing market, along with financial decisions made by city officials,” he said. “Pension costs are a small piece of the budget"

Quote of the day?

GetZeeGold's picture



“It’s not fair to scapegoat public employees and pensions...


Maybe not....but it's a hell of a lot of fun.


On the other hand......retiring at 50 with a pension of a quarter million dollars a year.....may be excessive......and a tad bit unrealistic.



Snidley Whipsnae's picture

Precisely why Merideth Whitney was always going to be correct about her Muni call... but she was off on timing...

Show of hands by posters that have NOT been off on timing at some point... thank you.

buzzsaw99's picture

calpers is a dumping ground for bad investments. i wouldn't let them manage ten cents. california should immediately sell all calpers assets, pay off debts, and pay-go.

LawsofPhysics's picture

Why would China ease, they are a net creditor.  They (unlike the U.S. leadership) will simply spend that money at home instead of giving away the golden goose by spending it around the world on useless wars with no return.  Of course they may continue to go around the world buying commodities.  Watch the yields on treasuries, an auction update would be useful right about now tyler, how much debt needs to be rolled over between now and the election in November?

dexter bland's picture

"Why would China ease, they are a net creditor"


Because their corporate sector is the most indebted in the world  and profitability is dropping rapidly thanks to overcapacity and declining exports. Also because their regional governments are up to their necks in debt and have yet to begin writing down all the worthless assets they borrowed to build during the last great stimulus. The central government will keep subsidising these losses while they can, but are by no means a bottomless pit.

I don't mean to suggest they will ease again though, there are many reasons not to: housing bubble, more bad loans, return to inflation, reduced consumption (due to high savings rate), but mainly - they can't afford to.

Yes will be interesting to see what happens to treasuries if China really does need to call in the cash in a hurry. Not an unlikely scenario at present.

Snidley Whipsnae's picture

When all the grown ups know that all the markets are manipulated why would anyone swallow this sentence hook, line and sinker ... "The market has reached a level where only recurring hopes and prayers of incremental monetization and easing by one or more central banks have any impact."

As pointed out here on ZH it is the flow that matters, and any that believe the Fed and others CBs are not feeding the flow, whether overtly or covertly, is missing the picture.

All that gamble with the bots with expectations of winning are foolish... excepting more technologically advanced bots.

Technologically advanced bots are devastating to Main Streets well being.



Shelby Moore III's picture

They can't feed the flow on European budgets opaquely. And we see that any ECB bond buying is going to require massive cuts in PIIGS's budgets, e.g. another 14 billion or 20% of Greece's budget has to be cut for next loan to be provided.

The market is hoping for some unlimited bond buying that could juice the world GDP, as was done in 2009. This isn't happening and isn't going to happen. Once the market realizes that the global GDP is going to continue to contract, i.e. that we've entered the stagflation period of the late 1970s, then another massive selloff on high volume will ensue. I am thinking Sept/Oct, after the Fed does not ease on Sept 13, because then the market will realize it is too close to elections for Fed to ease in 2012. And by then, the implosion going on in China will become more evident and the market will have realized that China is tightening again (as already reported!), not easing. And the grimness of the budget cuts that will accompany ECB bond buying should be evident by mid to late Sept.

GetZeeGold's picture



Relax dude....the printer's working at peak efficiency.