Earnings season is in full swing and tech is by no means the only sector that’s coming up short for the latest quarter.
Also putting pressure on our stock market, in a surprise move China raised a key short-term lending rate for the first time in more than two years. The move is aimed at cooling the country’s economy, but by raising the deposit rate, it will attract capital as well. And chances are more rate hikes there will follow. Stocks in China rallied, while commodities are off on the news.
China’s rate increase is also another salvo in the global currency fight that’s been heating up. With the 1and1 move, more capital is likely to flow into its economy, so there will be less pressure to allow the yuan to appreciate.
The United States has so far held off on labeling China a currency manipulator, but the frustration level in Washington is climbing. We’ll see what comes out of the upcoming G-20 Finance Ministers meeting in Seoul, South Korea, though China holds the better hand. For its part, Brazil, which was the first to label it a currency war, is planning to boycott the G-20 meeting in protest of the US weakening the greenback as a trade weapon. And with more quantitative easing all but certain from the Federal Reserve, the dollar is likely to fall further.
Stocks, of course, had come into a bit of overhead resistance, so a correction here isn’t all that surprising. furthermore, keep in mind that much of the stock market’s considerable gains in the last year and a half have been liquidity driven, rather than from improving fundamentals. And with more money printing here in America to follow, it’s not a stretch to see stocks rallying further in the coming months, with the April highs around 1,220 on the S&P 500 a big fat target—even if the economy continues to show signs of deteriorating.
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