FXStreet (Guatemala) – Cristian Maggio, Head of Emerging Markets Strategy at TD Securities explained that he was almost about to write that markets are getting used to Chinese stocks selling off to the tune of 7-8% a day, when China’s PBoC announced a set of measures that propped up the sentiment today.
Key Quotes:
“More precisely, PBoC decided to:
· cut the RRR by 50bp to 18.00%, as well as larger cuts for rural commercial and corporate banks
· cut the benchmark 1yr lending rate by 0.25bp to 4.60%
· remove the ceiling of the fixed deposit rate for more than 1yr
Markets cheered and, all of a sudden, the past days’ selloff seemed like a distant memory. Before that, at close today, the SHCOMP was already 7.6% underwater, extending to 15.5% the fall of the index this week. After the announcement, Asian futures rallied and other equity indices have moved along. Stocks are now a monotone green field and you’re likely to see more of this tomorrow in Asia.”
“Will this extend today’s EM FX rebound? Very possible, but this is not a straightforward call.”
“Markets expected the PBoC move during the weekend, hence the disappointment on Monday. But if the outlook for China and global growth improves at the margin of still not so bullish expectations, this also suggest that the bearish reassessment of the Fed outlook may be inconsistent with the new data we have.”
“I mentioned that for EMFX to recover, and to make that recovery sustainable, we need equities to stabilize first. The PBoC announcement today could be the first step in that direction. The second step would be liquidity returning to normal or ‘more normal’ levels than recently seen. At that point, we have two essential conditions that allow Ems to trade more in line with their fundamentals.”
“The picture remains highly fragmented in EMs.”
(Market News Provided by FXstreet)