Wednesday, January 13, 2010

Spook by China ?

I'm surprise that China has so much influence on the market. Just one action by China to tighten the liquidity sent the whole world into tail spin. Wow! Most will probably start thinking that is going to slow down their growth. My gut tells me they are going to sustain it at 8% growth to create enough employment. So, this is just a catalyst to flush out weak holders. I think the market will move higher after this round of correction.

Jan. 13 (Bloomberg) -- Emerging-market stocks dropped the most in four weeks, oil dipped below $80 a barrel and the pound rose on evidence central banks are preparing to scale back their emergency support for economic growth.

The MSCI Emerging Markets Index slipped 1 percent at 10:16 a.m. in London and the Shanghai Composite Index lost 3.1 percent, the most in seven weeks. Futures on the Standard & Poor’s 500 Index climbed 0.2 percent while Google Inc. fell in Germany after saying it may exit China. Crude oil declined as much as 1.4 percent in New York, and corn plunged to a two-month low. The pound strengthened and government bonds slid, with the 10-year Treasury note yield rising 4 basis points.

The People’s Bank of China yesterday raised the proportion of deposits banks must set aside as reserves, a move that may herald an interest-rate increase. Federal Reserve Bank of Philadelphia President Charles Plosser said U.S. rates should rise as the economy recovers. The Bank of England’s Andrew Sentance was cited by the Guardian as saying policy makers may have to raise U.K. borrowing costs this year.

“China tightened policy sooner than people were thinking, so that spooked the market,” said Nicholas Field, who helps manage about $11 billion in emerging-market stocks at Schroders Plc in London. “We have now passed that sweet spot where economies are starting to recover and there is a great earnings boost from the low point. This is not a collapse or a crash, but we will get a correction.”