All my kids got sick last week so after sleep-deprived days, I just had to cut all my holdings by Wednesday morning, moved to cash and put the market out of mind for a few days. Then the much-anticipated statement from the Federal Reserve came and disappointed investors. (I kinda sensed they would!) Then Friday rolled in and Bank of Japan did away with the need to make investors merely “hope” for stimulus – they actually provided the stimulus straight away with “negative rates” so people can borrow and buy. Previous week had the European Central Bank promise more stimulus.
OK so three Central Banks (of the biggest economies) had already made known their answer to the current market situation. Let’s round that up again :
1. Bank of Japan – stimulus implemented with negative rates.
2. US Fed – no commitment – March decision for rate rise
3. European Central Bank – stimulus promised in March
Now I would say the most important Central Bank to really address the issue (China being the originator of current market volatility) – the People’s Bank of China – had only come up with liquidity injections last week, supposedly for the Chinese New Year (CNY) celebration (and so far no help to the stockmarket). There has been no new policy, or no new spectacular rescues of the stockmarket although the last “statement” from Chinese officials in the World Economic Forum was a reassuring “we will take care of investors”. But nothing but silence after that. So I googled a little bit, and hmmm, I’m certainly not the only one noticing the silence from the policy makers. Check out the South China Morning Post article . “If the policymaker knows something, if they have genuine signals, then they should communicate them to the market; if they themselves are confused, they should keep their mouths shut.” The article also points out that while the PBOC Governor Zhou is a seasoned technocrat, it is increasingly likely that the economic decisions is being made by the party. Or that “Zhou’s silence could also reflect a change in China’s policymaking process.”
So I guess it’s another wait in the sidelines week. If they really want to think through the problems, my guess is that any real policy pronouncements will come after the CNY holidays. Although they’ve had a good few weeks after the disastrous start of January, we can’t discount the fact that any “stimulus” program announced this week will have the whole of China buzzing and that is always a good thing for how people view the government. It is highly likely they would announce a “stimulus” but what kind of stimulus is the question. Fingers crossed it helps in the structural change for long-term growth they are aiming for.
Anyway, so there’s still a lot of uncertainty — last Friday’s rally is being followed by another weak China economic report signalling manufacturing contraction. That stimulus better come soon. Serenity now!