Morning Meeting 04/09/12

Good Morning.

Asian shares traded in red territory this morning as the European Union's outlook was cut by Moody's Investors Service ahead of meetings of the region's policy makers today. It said the change reflected the negative outlooks now assigned to Germany, France, the U.K. and the Netherlands, major sources of EU budget revenue.

EU President Van Rompuy is traveling to Berlin for talks with Merkel today as Italian Prime Minister Mario Monti welcomes French President Francois Hollande to Rome.

Japan's Nikkei dropped 0.45% to 8,747.24,  Hong Kong's Hang Seng index slipped 0.32% to 19,497.97 and China's Shanghai Composite fell 0.38% to 2,051.3 as Societe Generale cut its forecast for China's real gross domestic growth.

Goldman Sachs Group Inc echoed Societe Generale  this morning lowering its earnings growth forecasts for China's publicly traded companies as slowing growth in the world's second largest economy crimps profit margins. Earnings per share for companies in the MSCI China Index of mainly Hong Kong-listed Chinese companies rose 2 percent in the first six months of 2012, slowing from 28 percent growth in the same period a year earlier, according to the Goldman Sach report. China's economy expanded 7.6 percent in the second quarter, the slowest pace in three years supporting our hypothesis that China is a “time bomb”, data are signaling that the second largest economy is contracting at a fastest pace than initially estimated therefore risking to go into a tailspin.

But investors main concern now is the European-issue. Yesterday, when ECB President Mario Draghi told officials he would be comfortable buying three year government bonds to bring down borrowing costs for nations in financial distress, he gave a hint to what may be in store. EU treaties don't allow the ECB to finance governments, on the basis that such funding could spark inflation; reason why the ECB chief underscored that 3 year bond buying is not a state aid.

Merkel, in a move to support Mr Draghi, has indicated that she would back a more active crisis-fighting role at the ECB. German Finance Minister Schaeuble said yesterday he was very sure the ESM will come into force, but warned investors not to expect too much from the ECB plan.

“We have to be very careful that we don't raise false expectations,” Schaeuble told Deutschlandfunk radio yesterday. “It has to remain very clear, state debt can't be financed through monetary policy. Therefore we can't have a decision –we would think it very wrong — that's not covered by the ECB mandate.”

The euro traded near a two month high against the dollar this morning at 1.2610$ or 0.14% versus the greenback.

Commodities carried on their bull run, with Gold up 0.60% to 1,697.70$ an ounce and Oil (Wti) 0.80% higher to 97.24$ a barrel as investors are getting ready for a money rain.

Traders world wide will have their eyes on the news tape, this is a headlines driven market therefore stay calm an be flexible in your thoughts and rigid  in your rules.

Originally posted at www.77sigmatrading.com