Following yesterday’s early MNI rumor that a Chinese QE is being “considered” and which sent the Shanghai Composite surging 3% and led to an initial boost in US stock futureFollowing yesterday’s early MNI rumor that a Chinese QE is being “considered” and which sent the Shanghai Composite surging 3% and led to an initial boost in US stock futures, overnight the PBOC scrambled to once again deny such speculation.
A few hours ago, PBoC chief economist Jun Ma said in an interview that media report on China’s QE is ungrounded. Paraphrased by UBS, Ma said that the central bank has enough tools to manage liquidity and base money supply with current tools at hand, and there was no need for the central bank to purchase local government bonds to supply base money. Ma noted that the central bank law specifically prohibits central bank to provide direct financing to the government. Forgive us if after the ECB roundly flouted a comparable law, we are somewhat skeptical that mere laws can stop central banks.
Ma also said that at the moment the PBoC has not considered allowing LGFV loans to be used as collateral for central bank onlending. Of course, going full “cold Turkey” on Chinese stimulus would be too much for the market to handle, so in a piece by the WSJ also released overnight, the author said the PBOC would pivot from outright QE to mere LTRO, which is also not new and was reported over a week ago here in “China Floats QE Trial Balloon, PBoC May Launch LTROs.”
In any event, for now at least, Asian stocks are not happy despite Apple’s latest blockbuster results, and neither is Europe, with the Stoxx 600 down 1%, and even the E-mini is hugging 2100 unable to levitate on any imminent central bank intervention, even though the UK’s 0.3% Q1 GDP coming in well below the 0.5% consensus, and the lowest growth rate since Q4 2012 suggests that it just may be time for the BOE to join global QE once again. In more detail, Asian stocks trade mostly lower after tracking yesterday’s biotech-led Wall Street losses, as the S&P 500 and Nasdaq Composite retreated off record highs. Nikkei 225 (+0.4%) was the session’s outperformer lifted by upbeat corporate earnings.
Hang Seng (-0.1%) and Shanghai Comp (-1.1%) pulled away from 7yr highs as participants paused for breath following their recent rallies. ASX 200 (-0.6%) fell amid profit taking after Jun’15 futures opened above 6,000. European equities took the lead from the negative closes in Asia and the US in what has been a relatively uneventful session from a fundamental standpoint. However, stocks have been the main focus following the release of earnings from European large caps such as Total (+1.7%), BP (+1.1%) Daimler (+2.1%) with Commerzbank (-4.5%) amongst the worst performing stocks falling as low as 5% after their EUR 1.4bln capital increase. The energy sector is leading the gains buoyed by BP and Total posted positive earnings as sharp costs cutting measures continue to take hold. From a Greek perspective, Greek asset classes remain unfazed by the latest developments whereby Greek PM Tsipras said Greece will pass a new deal with lenders through the Parliament and ruled out a snap-election if the government failed to get a suitable deal.
Tsipras also added that it is not necessary to go through a referendum because a deal will be reached with lenders. In terms of fixed income, Bunds and UST’s are relatively unchanged as the markets continues to remain quiet ahead of tomorrow’s FOMC meeting as market participants are expecting further clarity on whether the Fed will completely rule out a June rate hike.
