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China’s Latest Attempt To Rescue Sentiment Falls Flat
It looks like China's latest bid to juice investor sentiment fell a bit flat.
Friday's RRR cut anno
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The mismatch rise between the CSI300 and SPX is due to time zones. When the CSI closes, it’s early morning in Europe, and still night in US. It’s Friday afternoon in China, Friday morning in Europe, Thursday night in US.
When the CSI rose +2.4% on Friday, European indexes were up 1.5% like US futures, up the same 1.5%.
After the NFP indexes rose another 0.5%. At that point Europe + US futures were +2%. The FED effect turned out to be another additional +1.4% in SPX/Europe. Total +3.4%. Not so different from the CSI +3% (2.4% on Friday +0.6% today).
If the FED pauses, and in Q1 there will be more liquidity (Nordea Bank explained well why, some 200bn$ are forecast), the dollar is expected to slip, it already started. The dollar index on Friday was at 96.2 today it’s at 95.4 Also against the CNY it has lost ground, from 6.87 to 6.85
Now the fun comes for Europe, pulled up by SPX correlation (assuming it keeps going up) but dragged down by a weaker dollar. In fact the DAX this morning is already sluggish. Also China will live in this contradiction initially if trade issues are partially solved, the CNY will get stronger but Chinese exports may suffer. The improvement in liquidity (eurodollars) should in any case offset this and be a net positive effect for Chinese markets.
We will see. As they say one sparrow doesn’t make a spring.
Remember: the RRR cut came after the China close on Friday. Monday’s gains in A-shares and H-shares were not impressive.
Those markets should have been pricing in i) the RRR cut, ii) the upbeat US jobs report and iii) Powell.