Intraday Market Thoughts

It’s China, and more

by Adam Button
Jan 8, 2016 0:37

What's hurting markets now is the lack of a firm guiding hand in China but it's not the only thing weighing on sentiment. The euro and Swiss franc led the way while Aussie lagged Thursday as the early-year fright continues. Aussie retail sales slowed to 0.4% in Nov from 0.6%. In the Premium Insights, 4 out of the 5 Premium trades are in the green, while the GBPAUD trade was stopped out.

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It’s China, and more - Shanghai Comp Jan 8 (Chart 1)

Oftentimes, the only thing worse than poor leadership is flip-flopping leadership. China is renowned for long-term vision and planning but monetary officials in the country have badly tarnished the image over the past six months and it took another hit today.

Securities regulators introduced circuit breakers in July to halt trading when markets move more than 7%. That was a reactionary move. Now with panicky stock traders now blaming the circuit breakers for two declines this week, they've removed them.

Similar flip-flops took place with stock sale bans that were brought in, ready to expire and then renewed at the last minute. Reforms designed to curb debt and housing speculation have similarly been introduced and then watered down.

Investors like a clear set of rules and when regulators have the ability to close markets, ban selling and halt cross-border flows, it's no surprise that markets are jittery.

At the same time, the problems aren't only China. We highlighted worries about central banks yesterday, including fear that the Fed is dead-set on hiking despite an economy, grinding along at 2% without any inflation.

It's not only the Fed. On Thursday BOC Governor Poloz offered near-absurd levels of optimism in forecasting that non-commodity export businesses in Canada are about to boom. He outlined how 10,000 Canadian export businesses had shuttered in the past decade because of the strong Canadian dollar. He said it would take time but he thinks they're coming back.

They're not. And the Canadian economy is in the grips of a once-in-a-generation commodity bust. Once they realize it, the Canadian dollar will have even further to fall.

In the short term, the overwhelming focus is on China and what happens to Shanghai stocks and the yuan is crucial. Panicky PBOC officials likely can't stand the thought of another drop in Chinese stocks into the weekend but there are also rumors of a 10% one-off yuan devaluation because they have been rattled by the constant political criticism of the slow yuan devaluation.

If fragile market sentiment can somehow survive through Asia, then it's onto nonfarm payrolls.

Act Exp Prev GMT
Nonfarm Payrolls (DEC)
211K Jan 08 13:30

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