Morning Report Tuesday 20 January 2015
The Danish raise rates, China stops margin loans, what’s next?
I cannot remember a time when so many events were hitting the markets with such consistent regularity i.e. volatility is increasing. Yesterday, two more events unfolded in markets that in normal times would be monthly standout stories.
1. Chinese Policymakers introduced curbs on margin lending, sending their equity market plunging 7.7% on the day, the greatest fall in six years. Simply put it appears the Chinese Government believes the Shanghai Composite, recently the best performing stock market in the world, has run too hard too fast and wants to avoid any painful significant pullbacks when their property market is already wobbling. 2. The Danish cut interest rates to avoid speculation that it would follow Switzerland and abandon the Krone’s fix to the Euro. So the Danish Bank cut its deposit rate to -0.2% from -0.05% (yes minus) in an attempt to prevent the Krone rising to fair value against the Euro…history tells us that in the long run, markets return to fair value, so a dangerous game in my opinion.
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