 | Thursday morning was almost Day #2 of the Hopium Rally. On this day, China was supposed to take the baton and run like mad across the finish line. The handoff from the financial socialist (Ben Bernanke) to the Communists in China, however, didn’t go as planned; there was a misstep. The baton was dropped. The market closed lower.
The initial knee-jerk reaction was that if China was cutting interest rates then it must be good. After all, more bankers would be getting more money at lower rates – and isn’t that all that matters?
But the euphoria quickly faded. Someone bothered to ask “Why do central banks cut rates? Is it because the economy is good?” The response was “NO! Only when the economy is slowing.”
With that answer, the market fell into the close.
From the FT.com we read…
Just a couple of months ago, few analysts had forecast that Beijing would cut rates, believing that China was on track for a “soft landing”. But after growth slowed to 8.1 per cent in the first quarter, recent data showed the economy was on track for a sharp deceleration.
With the cut, China’s benchmark one-year lending rate will now be 6.31 per cent, while the one-year deposit rate will be 3.25 per cent.
The People’s Bank of China, which raised interest rates three times last year, had previously characterised its monetary stance this year as “fine tuning”, arguing that nothing dramatic was needed to support the economy. The rate cut marks a definite change.
The question now is whether businesses and households will respond to the lower rates by borrowing more. Banks have reported weak loan demand over the past two months.
In an important move alongside the rate cut, the Chinese central bank said it would allow banks to set deposit rates 10 percent above the benchmark level and to set lending rates 20 per cent below the benchmark.
This is a step towards interest rate liberalisation – that is, letting banks decide for themselves, based on market conditions, the level at which they set rates. Analysts believe this is crucial to putting the economy on a more stable footing by ensuring that households earn a fair return on their bank savings, thus encouraging more income to be used for consumption.
When Helicopter-Ben bails out Europe, I guess he’ll fly over to China to save it too. Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
larrylevin@tradingadvantage.com
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Trading Signals from the Electronic (ES) mini-SP 500 - OTF sell @ 10:43am at 1320.75 = -0.25 & b/e (2 lots)
- Algorithm positions (9)
- “Reading the Tape” positions (2)…combined Secret’s, Algo, & “Reading the Tape” total… +0.75
ES 1324.75 / 1317.25
POC... 1320.75
YM 12523 / 12473
NQ 2560.25 / 2542.75
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Keep a civil tongue.