Comments our of the Chinese Central Economic Work Conference suggests that the Chinese authorities will be focusing their efforts on boosting their domestic demand via dramatic increases in public spending and tax cuts. They also wants a stable CNY at a "reasonable level". The statement and decision to boost domestic demand via fiscal measures instead of external ones (weakening the CNY) should be a welcome relief to the markets. Short term, it should provide support for equities and weaken the Usd, lowering implied volatilites in those assetclasses. I am staying long Us equities, going short Usd via options.
As mentioned earlier this morning, markets are shrugging off bad news.
The following bad numbers were more or less ignored;
- Chinese exports contracted 2.2% Y/Y in Nov following gains of 19.2% Y/Y in Oct.
The first contraction for seven years.
- Imports plunged by 17.9% Y/Y.
Trade surplus at record highs of 40.1 BN Usd.
ECB Nowotny came out on the wires today further supporting the markets by indicating full commitment of EU funds to any European Emerging Market country in potential need of it. Thereby indicating the consequences should they fail. It is a massive commitment in my book. A mistake perhaps, but will be soothing and supporting for now. Lets end it with that bull feeling while it lasts.
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