Jul 23, 2012

Don't Blame Europe This Time - It's All About China

Asian stock markets have opened the week extremely weak (no pun intended). No doubt much of that is due to the SPX rolling over on Friday, but there is more. The Nikkei is down 1.8%, Hang Seng almost 3% and Shanghai 1.2% - all of them more than the 1% or so drop of the S&P in the last trading session of last week.

The mainstream media is quick to blame the noise out of Europe, but there is
more to this selloff. Certainly all the recent macro data has been quite negative as discussed a few days ago. In some sense, the market sentiment is just catching up with reality.

Also, looking at the FX markets, we see that of the risk currencies it is the Aussie that has taken the brunt of the selling, with the Eur/Aud cross actually bouncing a little. It seems that most of the selling is actually coming in preparation for the HSBC China PMI due tomorrow at 11.30am Tokyo time. The last few readings have been horrible and there is plenty of reasons to expect another low print and continued equity weakness. Unless Beijing comes to the rescue. And fast.

(More WhatIf Economics posts)

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