The G20 meeting concluded with a massive support for the People Bank of China and all members agreed that the country is facing challenging time and its support is very important. The main element which we think was of significant importance was relaying the message that the country has no intentions to start a currency war and any such thoughts are baseless. The people Bank of China assured the G20 members that the country is making every effort to spark more growth and the
devaluation of its currency in not a war but its efforts to make the export more attractive.
The managing director of the international monetary fund, Christine laggard, has also confirmed that she feels comfortable after the G20 meeting about the chinese central bank’s intention however, she has still doubts about the US raising the interest rate prematurely
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What is really important for China is going forward to start communicating its intentions more clearly and lay out a plan if the country does not want to suffer another leg of turmoil. Valuations for Chinese stocks are increasingly becoming more attractive for investors as compared to a few months ago and if the investors can see a clear path for the central bank’s attention, it will only lift their confidence in holding risker assets
Friday’s US NFP data has raised the mood on Wall Street that the Fed will be able to lift the interest rate during this month. Although, August reading is know to be notorious nonetheless, the unemployment rate has printed the number of 5.1% against the previous reading of 5.2%. Payroll employment number was well short of expectations and this initially spooked the investors as the forecast was for 217K and the number released came in at 173K. The revision for the month of July and June has raised the total number by 44K and the now the average for the past three months is at 221K- not a bad number at all.
The fact is that the labour market is the main foundation for the fed to make their decision about raising the interest rate and the unemployment rate of 5.1% represents that the country has full employment. If the employment level is full, it makes absolutely no sense for the fed to keep the interest rate this low and this is one of the main reason that we still think that the September is not off the hook and there are still chances that the Fed may use the approach of “get this out of the way”. Increasing the interest rate by twenty five basis points gives them option to monitor the economic health more accurately and if the situation does deteriorates, they canalways cut the interest rate again. But, the fact is that the Fed need to increase the interest rate and current economic situation does not warrant them to keep the interest rate at this level.
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