The European equity session is confined by the weakness in the Chinese economic data. We have too much anxiety and the medicine is not working and this is creating a worrisome environment. The People Bank of China instigated another easing measure yesterday by lowering the RRR ratio by 0.5%, but today’s currency reaction has faded all that effort. On top of that, we had a print for the Chinese Feb Caxin manufacturing, which fell short of expectations with the reading of 48. The Chinese factory gauge fell to the level which we have not seen since November 2011.
The Chinese official PMI manufacturing comes in at 49.0 in contrast to 49.4 which was the reading during the month of January. Traders are reading this as an adverse news and it is challenging to see any kind of silver lining in this affair. Although, there is no doubt, that speculators could use many alibis such more quantitative measures from the people bank of China could be hitting the news wires, but the reality remains very much sanguine. Printing money, lowering interest rate have come to their limitations and reforms must take place in order for the above measures to work.
Given that the European, CPI has slipped even further, as the data confirmed yesterday, traders are pushing the German yield even lower as they are certain that the European Central Bank will evoke more easing measures. ECB’s bullets do not have much of an impact and the core pillars which the ECB is targeting, are also not showing any changes. The only measure which can create a light at the end of the tunnel is reforms and the politicians are very wary of using them as this goes against their reputation.
Today is the first trading day of the month and investors are going to pay some attention to the technicals. Both the S&P and the DOW Jones index fell below their 50 day moving average , a sign which shows that the bears are about to take control. This is the biggest economic data week and traders are going to carry on benchmarking these numbers and position their portfolios accordingly. The ECB meeting is next week and hopes are riding high that the president of the European central is not going to show much apprehensiveness towards the feeble European banking system.
Although, it is way too early to say that the ECB’s labour of cutting the interest rate in a negative territory has no fruit, but one affair is very prudent that investors are surely immense apprehensive about the health of the European banking sector and if it has the ability to survive under these conditions.
In terms of economic data, we have plenty of numbers on the menu. We start will the manufacturing PMI numbers for the big three economies in the Eurozone, Germany, France and Italy. The UK’s manufacturing PMI reading is due later and the forecast is for 52.3. Later in the day, we have the US ISM manufacturing number.
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