Crude oil retreats for the first time in 3 days amid profit-taking and correction in Asian and European stock markets. Gold also slipped after rising for 2 days as USD strengthens.
Stocks pare gains amid concerns about slowdown in growth in China. The MSCI Asian Pacific Index slid -0.7%, led by decline in banking stocks. Regional benchmark indices also dropped with Japan's Nikkei 225 Stcok Average losing -1.1% and Hong Kong's Hang Seng Index falling -1.4%. In China, the Shanghai Composite Index plummeted -2.4% as investors worry the government will raise interest rate soon to curb inflation.
China's Industrial Bank forecast, in the company's result announcement, that the growth in new loans will drop by -50% in 2010 from last year as a result of the government's cooling measures. Premier Wen Jiabao said in a speech last week that the country's economic growth path is 'unbalanced, uncoordinated and unsustainable'. The market is watching closely to Wen's speech to the national People's Congress tomorrow in Beijing to seek guidance on policy outlook.
Analysts in the market generally anticipate the government will step up tightening measures in 2010 as the government aims at limiting inflation. According to Industrial Bank, lending in China will turn to 'steady growth' this year from 'rapid growth' in 2009.
The dollar regains grounds against major currencies ahead of ECB and BOE rate decisions. USD rebounds after sliding for 2 days against EUR. Currently trading at 1.365, EURUSD falls from a 2-week high made yesterday amid optimism of Greece bailout. However, European leaders refused to commit to a plan helping Greece to step out from deficit. GBPUSD slips to 1.502 as the country is facing both fiscal and political risks. The pound tumbled below 1.5 against the dollar earlier this week as polling results showed that the Conservative Party's lead over the Labour Party has narrowed to as low as 2% on February 26. The result signals it's likely to have a hung parliament in the new term. With no party has a majority, it would be more difficult to pass legislations and could dampen the fragile economy.
BOE and ECB will announce rate decisions later today. While we expect both central banks will leave policy rates unchanged, the ECB will probably announce adjustments on several funding facilities with the aim of withdrawing excess liquidity. For instance, the ECB offer the 3-month and the last 6-month tender at a tracker rate, same as the case of the 12-month tender offered in December; it will continue to provide unlimited funding, but via MRO with shorter maturity (e.g.: 1 month or 1 week). Moreover, the ECB may re-introduce auction for LTRO. The ECB staff will also publish a new set of economic forecasts.