Tuesday 27 October 2015

Top Tweets Today: 27/10/2015

Remember when news publication Barron's said there was further downside to the Alibaba stock price? Guess who'll be eating humble pie today after the Chinese internet giant proved skeptics wrong  by beating forecasts. However it does point to a much better situation in China than may have been thought when global markets fell on growth concerns.

I've said a number times in my daily blogs that although Chinese growth has sunk authorities have a considerable amount of ammunition they can use to stimulate the economy, a situation that the US isn't afforded at present. The transitory nature of the economy is expected to put a drag on things put I think any nation wouldn't mind bragging about economic growth at just under 7% per annum wouldn't you ?
The Fed begins its 2 day FOMC meeting today with much expectation for rates to remain on hold for now quashing all worries that we will see interest rates hiked this year. Last meeting Fed chair Janet Yellen voiced her concern over Chinese financial market turbulence as well as a tepid inflation rates in the US caused by lower energy prices as a result of a commodities slump.

Since then we have seen an unimpressive earnings season that points to a weaker US economy and stronger dollar hurting earnings being repatriated back home. We have also seen the ECB expressing its intention to ease further as well as the PBOC dropping interest rates in China for the sixth time this year all but dashing the ability to hike rates.

My biggest concern is the longer the Fed holds off the greater the probability of it returning to quantitative easing, something I cannot see as a long term solution to prolonged economic supression. I think the world has found itself in a compromising position where it's flooded the market with free money which has found it's way onto global equity market and the risk of hiking could trigger an even worse situation than what we saw in 2008/09.

So far we seen how markets have performed without monetary stimulus which is anything but impressive clearly showing the markets need to be fuelled by free money. Unfortunately that is not a reality and all good things (this could turn into a bad) have to come to an end.

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