NEW YORK (Reuters) - Elections in Greece and France over the weekend have ushered in a new period of uncertainty for financial markets that could stand in the way of the easy-money rally that boosted stocks at the start of the year.
In the past few week, China intraday lending rates as measured by SHIBOR got as high as 25% (See China Cash Crunch: 1-Day Interest Rate Spikes to Record High 25%).
With rates spiking, global stock markets plunged.
On Monday China insisted banks had significant liquidity sending a message that banks need to manage their own risks. This sent the Shanghai stock market index down about 6% as show in the following chart.
Bizarro market got you paralyzed with inaction (and unwilling to generate trading commissions for Goldman) as you try to make sense of an insane world in which first rising (but not too much) bond yields were desperately spun as positive for the economy and thus stocks because it means inflation is finally on the way, only for the same spinners to turn around and now allege that plunging bond yields are great for the Equity Risk Premium so you must, you guessed it, buy stocks?
We’ve long maintained that Japan is ground zero for the “QE works vs QE doesn’t work” debate. The Fed’s economic models, and 99% of the economic models employed by Central Banks in general, believe that monetary easing can bring about an economic recovery. The primary argument for this crowd if QE has thus far failed to produce a recovery is that the QE efforts have not been big enough.
The soap opera in Greece continues with Germany and France tugging on opposite sides of the rope, and support for Golden Dawn, an alleged neo-Nazi party rising in the wake.
French president François Hollande is on the sidelines, not wanting another battle with German chancellor Angela Merkel who has her own set of problems.
By Jim Kelleher:The stock market has not gotten much of a lift from a clearly above-consensus earnings season. So it was only appropriate that a blow-out jobs number also failed to move the market - in fact, stocks sold off. Despite the less than spectacular reception, both earnings growth and jobs growth signal underlying health in the economy, in our view.