Morning Meeting 29/08/12

Good Morning.

The Asian session today supported our “Time Bomb” hypothesis, China's retailers from clothing to computers are reporting weaker sales growth, undermining Premier Wen Jiabao's goal of relying more on consumer spending for expansion as the economy stuck in low gear. Retail sales missed economists' forecasts in three of the last for months.

In his speech in March Wen signaled that leaders are determined to cut reliance on exports and capital spending in favor of consumption, saying to legislators that “expanding domestic demand, particularly consumer demand, which is essential to ensuring China's long-term, steady, and robust economic development, is the focus of our economic work this year.”

The People's Bank of China cut interest rates in June and July for the first time since 2008 and has lowered banks' reserve requirements three times starting in November. Authorities have accelerated approval of projects and local governments have announced trillions of yuan of investment- spending goals in the next few years.

The Shanghai Composite index declined 0.46% to 2,063.71, Japan's Nikkei Stock Average rose 0.13% to 9,044.59, while South Korea's Kospi edged up 0.32% to 1,921.74.  Japanese oil firms moved higher keeping the gauge in green territory. Oil (Wti) fell 0.31% to 96.03$ a barrel as late on Tuesday, group of Seven finance ministers issued a statement urging oil-producing countries to raise output to ensure the market is well supplied, while warning that Western nations were ready to tap strategic oil reserves to offset rising prices that could hurt global growth.

The euro traded at $1.2557 against the U.S. dollar, hovering near a seven-week high of $1.2590 hit last week, and touched an eight-week high against the Australian dollar at A$1.2123 on optimism that Europe will take positive steps to tackle its debt crisis.

Spot gold traded at $1,671.40 an ounce, near a 4-1/2 month high of $1,676.45 hit earlier in the week, as investors get ready for a new round of QE.

But investors have become less certain of getting any policy hint from the Jackson Hole meeting. As data released over the past month has generally pointed to a modest US recovery investors hopes on a new strong monetary stimulus have been undermined. “September jobs data could still revive expectations for a powerful easing if numbers were weak”, it looks like the market is addicted to stimuli therefore preferring weak data to support Central Bank intervention other than a self-supporting economy. Is this an healthy economy?

Different situation in Europe, where a new bond buying program to ease borrowing stress in Southern Europe is considered a “sure thing”. A failure to live up market expectations could  undermine the common currency .

A new threat is coming from Spain's most economically important region, Catalonia: it asked for major bailout from Madrid, increasing fears the country may soon have to ask for an European rescue package to reduce its debt costs.

From the macro stand point the US GDP is expected at 1.7% (QoQ) versus 1.5%  in a previous reading, but the Fed Beige Book will be under the spotlight for hints on economic trends and challenges in the US, just 2 weeks before the FOMC meeting that is considered one of the most awaited event of the year.

We got enough information to work on today, therefore let's kick start the day.

Originally posted at www.77sigmatrading.com