Investors prayers were answered yesterday when the PBOC cut the reserve requirement ratio by another 1% point. A standard and a typical response by the central bank to weak Chinese GDP reading which was released last week. If you are surprised by this move from the people bank of China then certainly you were on the wrong side of the trade, because if history teaches us any thing, it is this, when the central bank is determined in pushing the growth higher, it is sensible to join the trend as it pays off very well.
This is another evidence that the PBOC is in aggressive mood to boost growth and is not afraid to do what ever it takes to achieve it goals given that the most recent cut has taken place only last year in November. The new home sales data released today has confirmed that the trend is towards the downside and this is the seventh consecutive month in a row that the trend is maintaining its strength.
Back in Europe, the stock market is recovering their losses from last week as traders are optimistic that an improvement in Chinese economy will have positive impact on the global economy. The DAX index was the biggest victim of heavy punishment last week and this was mainly due to the fear in the market that Greece will not be able to pay its debt. The Torika which was previously hesitant in discussing the possibility of break up of the euro or kicking the country out of the Eurozone, if they do not full fill their agreement is brave enough to discuss this. Investors have taken this as a sign of failure and this has caused the panic in the market.
As for the economic data for this week, we will have the reading for the flash manufacturing and services PMI data for the month of April for Germany and France.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam