Markets Stabilized Temporarily as No Bad News Released

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Stabilization of the market proved to be short-lived as the declines resumed in Asian session Friday. Indeed, the late rebound after the slumps on Thursday was more due to absence of bad news rather than emergence of good news. After the disappointing trade report in China, the world's second largest economy reported moderation in inflation. Recent data have indicated slowdown in China's growth prospect and suggested the need for stimulus. In the commodity sector, the front-month contract for WTI crude oil gained for the first in 7 days and settled at 97.08, up +0.28%, Thursday. The benchmark Comex gold contract added +0.08% to end the day at 1595.5. However, both contract showed resumption of the recent downtrends in Asian session Friday.

The lack of new news gave the market an illusion that the situation in the Eurozone has become less uncertain. Investors did show some optimism as former Greek finance minister Venizilos's Pasok party attempted form a coalition government in Greece. The euro initially fell to a 3.5 month low before rebounding to largely flat. Peripheral bonds began to converge with core ones with yields easing a tad.

In China, headline CPI gained +3.4% in April y/y, down from +3.6% a month ago. Deceleration in price levels was seen in a wide-range of categories, including food prices which were once the key driver of inflation. The recent announcement of retail fuel price cuts will add pressure to disinflation in the near-term. It is expected. The downtrend is expected to continue until a rebound is seen by midyear.

On the dataflow, US trade deficits unexpectedly widened to 51.8B in March from 45.4B a month ago. Initial jobless claims sipped -1K to 367K in the week ended May 5, bringing down the 4-week average to 379K. Continuing claims dropped -61K to 3229K in April 28. The BOE left the Bank rate unchanged at 0.5% and the asset purchase program at 325K in May. The quarterly report due next week is expected to show the central bank's outlook on the economy.

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