Investors seemed to have heeded the old adage "Sell in May and go away".
US stocks on Dow Jones Industrial Average fell below 10,000 for the first time since Feb-2010 as sovereign debt woes continue to unsettle global stock markets compounded by last Friday's announcement by Fitch to downgrade Spain's sovereign debt rating by one notch to AA+ becuase of the country's sluggish outlook for economic growth.
May's slump in risk assets were also excerbated by geopolitical risks in the north Korean peninsula and China tightening of monetary policies.
This month, we have also seen the consensus over a Chinese reminbi revaluation crumble apart as analysts and traders changed their forecasts for a modest Chinese revaluation to none at all for the next 12 months. This is largely prompted by the sharp fall in the euro against the dollar driven by the euro crisis. In euro terms, the renminbi has risen 13% against the euro so far this year, threatening profit margins of many chinese companies who export to Europe.
So, any further speculation of revaluation on the renminbi is going to be closely tied to outlook of the European debt crisis and whether euro/dollar will plunge further.
Eric Tan,
London
Monday 31 May 2010
Saturday 15 May 2010
The week European policy makers unveiled a $1 trillion loan package
Market took a beating on Friday with DJ Eurostoxx 50 down -4.7% and Spanish IBEX taking one of the largest Eurozone hit of -6.64%.
Fears that the eurozone economy is heading for a death spiral of falling prices and plunging output threw global markets into a tailspin. This was the unlikely story the same week Eurozone policy makers unveiled its $1 trillion loan package to help struggling countries with their debt. But the doubts about ECB's independance and strains amongst partners are becoming clear as the market digests news of the rescue package one and a half times the size of the US TARP.
Analysts have been working through the week to assess if Spain's problems could be too big to bailed out and market rumours that Spain could need a 280 billion euro loan raised alarm bells on Friday.
Essentially, what the European policy makers are trying to do is to treat a solvency problem as if it was a liquidity problem, however such an expansionary policy will simply just buy Eurozone more time but real improvements still needs to be made to reduce government deficits and promote growth in the "more-abled" Eurozone countries.
As the Euro trades for the fourth week lower against the USD, we are likely to continue to see downside pressure and test the key level of $1.165 before the year end.
Eric Tan,
London
Fears that the eurozone economy is heading for a death spiral of falling prices and plunging output threw global markets into a tailspin. This was the unlikely story the same week Eurozone policy makers unveiled its $1 trillion loan package to help struggling countries with their debt. But the doubts about ECB's independance and strains amongst partners are becoming clear as the market digests news of the rescue package one and a half times the size of the US TARP.
Analysts have been working through the week to assess if Spain's problems could be too big to bailed out and market rumours that Spain could need a 280 billion euro loan raised alarm bells on Friday.
Essentially, what the European policy makers are trying to do is to treat a solvency problem as if it was a liquidity problem, however such an expansionary policy will simply just buy Eurozone more time but real improvements still needs to be made to reduce government deficits and promote growth in the "more-abled" Eurozone countries.
As the Euro trades for the fourth week lower against the USD, we are likely to continue to see downside pressure and test the key level of $1.165 before the year end.
Eric Tan,
London
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