Too soon to call it "Crisis"? 22-Aug-2015

SSE Composite Index in CNY and USD

Stock price has steeply gone down in major economic zones in the world, lead by Chinese market, followed by such US, UK, Western Europe, Asia and Pacific.

Without particular events, such as Sub-prime loan crisis or Lehman crisis, the crisis is defined after the stock market crashed into bottom. Although the stock market has plunged sharply, in SSE Composite Index, the current level is still almost same or slightly above the level at the beginning of this year.

This is both in CNY and USD.

S&P/ASX 200 in AUD and USD

It means, even though CNY itself has been devalued this month, the stock index is still higher than the value at beginning of the year.

However, looking at Australian stock index S&P/ASX200, the level is already record low within last 4 - 5 years in USD, while it is still above the level at beginning of 2015 in AUD. This is because of weakness in AUD in last 3 years.

The stock market is highly correlated as realized last October or movement in this month.

CITY A.M. >> Chaos on European markets as FTSE 100 tumbles, while S&P 500 crashes below 2,000 points

There still seems be room where Chinese stock market is going down, the correlation could bring more chaos into other economic zones than China itself.

See Stock indexes for other economic zones.

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EURJPY Trend & momentum 11-Aug-2015

Expectation of Greek deal bring positive sentiment into the market, and EUR has been steady for last days. In Asia and Pacific market, since CNY (CNH as offshore) was devalued as poor economic figure, AUD also became weaker, which implies Australian dependence on Chinese economy.

Reuters >> China devalues yuan after poor economic data

The trend and momentum indicates EURJPY is expected downward trend in a coming week while EURJPY have been steeply going up by now.

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Bank of England interest rate decision on Thursday

Bank of England official rate

British interest rate will be reviewed on Thursday 5-Feb, at noon. Currently, the interest rate is 0.50% remarkably low level and the consensus implies it will be unchanged, staying at 0.50%.

However, the downside risk is remained while major economies has unexpectedly cut their interest rate such as Canada and Australia, New Zealand's interest rate is expected be lowered in this year and US could delay lifting up their interest rate.

Today, Chinese central bank decided to cut reserve requirement ratio for banks to increase their lending, which implies more money will be provided into the market.

China cut the amount of cash banks must set aside as reserves in a bid to boost the supply of loans, as capital outflows and weakness at the nation's factories suggest a slowdown in the world's second-largest economy is deepening.
The reserve ratio will fall 50 basis points on Thursday, the People's Bank of China said on its website Wednesday. The level will drop to 19.5 per cent, based on previous statements, while some lenders to rural and small business get bigger reductions.
The PBOC joins more than a dozen global counterparts in easing monetary policy this year as tumbling commodity prices provide scope to support growth. While Premier Li Keqiang told global business leaders last month not to worry about weakening Chinese growth, the latest step signals policy makers are concerned the slowdown has yet to reach bottom.
"You have lot of the world easing monetary policy in a context in which inflation is going down, partly because of relatively slow growth and partly because of falling oil prices," said Edwin Truman, a former Federal Reserve and U.S. Treasury official who's now a senior fellow at the Peterson Institute for International Economics in Washington. China's latest move is "part of that general pattern."

Ref. China joins wave of global easing with cut to bank reserve ratio Read more: http://www.smh.com.au/business/china/china-joins-wave-of-global-easing-with-cut-to-bank-reserve-ratio-20150205-136fns.html#ixzz3Qo9BpDzG


Reserve Bank of Australia (RBA) has cut Australian interest rate 25bp from 2.50% to 2.25% on this Tuesday, which was unexpected though further cut had been concerned.

Posted on Forex Flyer: AUD interest rate review on this Tuesday

Policy driven market 22-Jan-2015

Last week, SNB announcement about Franc cap removal brought the hugest impact in currency market. However, certain level of surprise have seen in the market for this week.

Canadian Dollar [CAD]
Bank of Canada unexpectedly cut the overnight rate 25bp from 1.0% to 0.75%. CAD has been declined against most of major currencies after the announcement. According to the announcement, plummeting oil price weigh on Canadian economy.

GBPCAD has stayed around 1.82 - 1.83 earlier this week, and now it is around 1.86 though it is less than the peek in this week.

Ref. Bank of Canada cuts key rate to 0.75% as oil plunge takes toll on economy


Danish Krone [DKK]
Danish Krone has been weaken due to the consensus that DKK peg to EUR could be abandoned for ECB announcement. Danish Central Bank responded to ECB announcement, cutting interest rate. EURDKK stays around 7.44, which was 7.43 at the beginning of this week.

Ref. REFILE-UPDATE 2-Danish c. bank intervenes to weaken crown, cools rate cut talk


Euro [EUR]
It was not surprised that ECB announced that they will bring additional QE. However, ECB indicated the monthly purchase for 60 billion euro more than the market consensus 50 billion euro. EUR has been down after the announcement against major currencies.

Ref. 
GLOBAL MARKETS- Shares rise, euro slides as markets cheer ECB QE plan
UPDATE 4-Oil prices above $49 ahead of ECB bond buying move


Sometimes, the surprise by political matters makes financial market more volatile, but it might have been more than expected since last week. Greek election is still ahead, and it may bring further volatility into the market.

While many market events have been driven from European market, unexpected events could come from Asian Pacific market.
Australian dollar is considered as higher than RBA prefers, which the governor of RBA mentioned last month. (RBA boss Glenn Stevens says 75 US cents is ideal level for Aussie dollar)
If Chinese market indicates its slow down clearly, Chinese interest rate could be cut further and Australian economy would be slow down due to their dependence on Chinese economy.

Are we in Stagflation? 15-Nov-2014

Imagine that your money in the bank account is gradually decreasing time to time.

Obviously, you never see your savings decreasing, instead, you see the savings increasing according to the interest rate. In this meaning, your savings will be same or even more amount time to time.

However, consumer price is increasing time to time as well as your savings are increasing. Question is which of them is increasing in larger scale? If interest rate is greater than inflation, you implicitly win the spread between interest rate and inflation. If opposite, you implicitly lose.

This figure shows the spread of annual interest rate and inflation rate after FX impact adjusted.

Scores of the economic zones, US, UK, Europe have stayed in negative since Lehman crisis. Japanese and Australian scores have been up and down since that time. Currently, only Chinese economy has positive score.

It implies that value of money is relatively decreased in those major economic zones except for China.

Normally, once inflation is going up, the interest rate is also going in order to limit the inflation. But it seems major economy is vulnerable to deflation back again, and this may lead the interest rate being kept at record low level for coming years.

In this situation, diversification into other asset classes can be hedging strategy against inflation risk.