With the dollar lower and gold and silver rallying for the second day in a row, major reforms in China and Europe will have a huge impact on markets…
By Peter Boockvar, author of the Boock Report
October 10 (King World News) – Here is what Peter Boockvar wrote as the world awaits the next round of monetary madness: For a 2nd straight day, the Chinese yuan is rallying sharply to a 3 week high after comments from the head of the PBOC. He said in an interview that:
“There isn’t a single country in the world that can achieve an open economy with strict foreign exchange controls…The time window is very important for reforms, an appropriate window must be seized. Once missed, the cost of reform will be higher in the future.”
Part of this reform will also be in opening up further of their financial system to foreign investors. These comments of course come just before the 19th Communist Party Congress. The Chinese continue to be on this tightrope of trying to slow the growth of credit and leverage at the same time they want to grow 6.5% with hopes here and there of liberalizing parts of their economy further. The Shanghai comp closed up by .3% as did the H share index. I’m a big time long term bull on China but I’m back and forth in the short term as they walk that tightrope…
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Boockvar on challenges facing Europe and the ECB: Not surprisingly two weeks before the ECB meeting, a German ECB Executive Board member Sabine Lautenschlager said:
“My opinion is clear: we should begin to scale back our bond purchases
at the beginning of next year.”
She also cited the law of diminishing returns by saying while “low interest rates are justified, they have side effects. And these side effects grow over time, while the intended effects of expansive monetary policy wear off. The same is true of the bond purchases.” I estimate that on a very conservative taper process where they go to 40b euros in Q1 and cut that by 10b each quarter to get to zero by December, that would be 420b euros (or $500b) of less purchases in 2018 off the current run rate. Add to that $450b of QT from this month to year end 2018. I’ll argue again, that is the recipe for multiple compression that faster earnings growth better make up just for markets to stand still.
Art Cashin weighs in on important topics
A portion of today’s note from legend Art Cashin: Overnight And Overseas – Despite rumors of an impending North Korean nuclear missile test, markets in Asia are moderately to modestly higher.
In Europe, there is a more mixed pictured. London is slightly higher but markets on the continent are modestly lower as Catalan question seems to come to a boil.
Gold is up again on follow-through to the technical reversal mentioned yesterday. Crude is above $50 as OPEC types call on U.S. frackers to limit output and neighbors plans to restrict Kurdish crude shipments. The euro is a bit firmer against the dollar and yields are down a tick.
Consensus – Multinational players back from holiday and markets try to rebound. Watch WTI.
Stick with the drill – stay wary, alert and very, very nimble.
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