Centrally Planned Markets Move Higher on China QE Hopes

Central Banks still control market direction.

Bullion.Directory precious metals analysis 30 March, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

Equity markets across the globe ended the day dramatically higher on the hopes that major central banks will continue to support risk assets through the ongoing string of poor economic data. China’s impact on the global growth scene is large, and there is a potential for further slowdown from what was an economic powerhouse.

Tomorrow’s manufacturing data could show that Chinese manufacturing is still contracting. Bad new? Not if one owns stocks. Market participants are hoping for a huge stimulus package out of the People’s Bank of China (PBOC).

Andrew Brenner, head of international fixed income at National Alliance Capital Markets told Bloomberg, “stocks are being driven in the short-term by the potential for Chinese quantitative easing that they hinted over the weekend, as well as mergers and buyouts in the equity market.” PBOC Governor Zhou Xiaochuan said that the central bank could do more to support growth in China. However, quantitative easing out of the United States, Japan and the Eurozone has done little to actually boost economic output.

The PBOC is one of 20-plus central banks that has cut interest rates this year in hopes that it spurs some sort of economic revival, but it has done little. Analysts at Danske Bank said that there was some speculation that the PBOC could weaken the Chinese yuan, which has not  been an active policy tool as of yet. However, the Danske believed that that option is currently not on the table.

Zhou said that growth expansion is not going as planned and has fallen off much more than expected. Like a true central banker, the PBOC head said “inflation is also declining, so we need to be vigilant to see if the disinflation trend will continue, and if deflation will happen or not.”

Analysts at Danske Bank may not believe China will further intervene (outside the current yuan band), but the trend should continue with central banks manipulating the currency to spur inflation. What’s money anyway?

To shed some light on a central banker’s view of the value of money, Fed Chair Janet Yellen said last Friday that “cash is not a convenient store of value.”

Perhaps because central banking destroying what little value fiat money has left.

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