The trading has started this week in a quite way despite the China's decision of hiking the interest rate 25 basis points to be the second in the recent 2 months after it had requested from its banks to increase their reserve requirements 0.5 percent to be the sixth time this year for curbing the inflation upside risks by capping investment spending cooling the economy with rising of the energy and commodities prices by this year end which is expected to continue with the Fad's keeping of its quantitive easing policies which caused depreciation of the greenback putting China under pressure to cool its economy further which can have a negative impact on their economic growth and exports at the current high prices and also their stocks markets which have lost above 500 points since the middle of last month under the pressure of this policy which can support the Yuan hurting the business spending and this has really helped US trade balance to get better tightening the US trade deficit which came down in October to 38.7b$ from 44.6b$ in September while the market was waiting for 44.8b$ and this is expected to continue while US is still having an unstable housing market growth yet and weak labor market which can support the Fed keep its monetary policy stance unchanged unfazed of the inflation risks which are still looking tame as we have seen recently US CPI of November coming at .1% monthly while it was expected to be .2% and the core figure excluding the food and energy rising by just .1% as expected after 2 months of flat reading maintaining the Fed's worries about the deflation risks while Chinese inflation came at a 28-month high at 5.1 in November which can open the door for PBOC to take tighter monetary actions for staving off the prices currently which can hurt the global growth rates and effect negatively on the risks appetite supporting the greenback and the gold as a reaction of the US easing policy which has hurt the greenback again by extending the working of the tax cuts which have been taken during Bush's presidency in another way of easing can hurt the US budget and treasuries prices driving the US treasuries yields which china has a great deal of them in the same time.
While The European stocks markets are still underpinned by the gains of the US equities markets with high potential of the commodities and energy prices which reinforce the mining and the oil companies earning by the end of this year with the ECB keeping of its supporting of the bonds markets lowering the yields giving underpinning the investors' confidence of the investors with the market focusing on the debt crisis but these gains can be always tempered by be the threats of the debt contagion worries putting the European stocks back under pressure and the single currency which has a weaker positions with the market expectations of pumping new funds into countries actually suffering from weak financial position and accumulated deficit like Greece which could have an extension of its loans maturity and also Spain and Portugal which has been downgraded by Fitch one notch to A+ with a negative outlook which can keep it under pressure to be the nearest to take a share from the IMF and the EU bailing out package following Ireland which has been downgraded five notches to B
with a negative outlook from Aa2 by Moody's which has announced that it can downgrade the Spanish long term credit rating of Aa1 too recently which contained the market sentiment recently weighing negatively on the Euro ignoring the better than expected economic data from Germany which driving the EU economic growth up as we have seen recently the germane IFO business climate recording new historical new high in December at 109.9 since the beginning of it in 1991 after it has made 109.3 in November and the germane retails sales figure of October rising up by 2.3% monthly while it was expected to be up by just 1.3% after falling in September by 1.8% which helped EU consumer confidence getting up to new 3 years high and lead November EU manufacturing PMI index to be above 55 again at 55.3 from 55.5 in October.
God Willing, it is important this week to wait for US December Broad Consumers Confidence to be 56.1 from 54.1 in November and later this week which is expected to have a thin trading, we wait for US December Chicago PMI to be 61.5 from 62.5 in November.
Best Wishes for a Happy New Year
FX Consultant
Walid Salah El Din
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