European markets are on track to start the week where they left off. This week has number of conspicuous economic data releases which could bring higher volatility in the market. For instance we have the Chinese GDP growth data which bonds very well with the disheartening export and import numbers released today which everyone is talking about. Both export and import numbers have played one beat that the people bank of China needs to open more liquidity taps to stimulate the economy, if they want to maintain the growth target of 7%. The export based economy is in a process of structural changes and most of the efforts are focused on the consumption and given the number released today are appalling, you want to ask if global growth slowdown is casting its shadow.
However, if you do think that there is really a global growth concern, but then you look at the equity markets, which are persistent in making the headlines and these headlines makes your blood more warmer, as you read record highs are being made and your fellow traders are cashing in on this while you are concerned about the issues of global growth slowing down. So the question really is who is being smart and who is being greedy or making the same tremendous mistake? The answer may not be that simple, however it is not so far from reality that the central bank’s are of mind frame that by pumping the money in the economy they can artificially raise the stock market, if this can be compared to the concept of rising tide raises all the boats with it!, I am not so sure that this actually is the situation with the growth and the stock market because both of them are not synchronised in that manner.
The rest of the data for this week which is immensely impressing to pay attention is the UK inflation and jobs, U.S. retail, but the element which is paramount is the ECB press conference. The question really will be how the ECB is going to keep on buying the debt which is in the negative territory. Nearly 57% of the German debt for the short term maturity is trading either below zero or near enough zero and given the 2 year maturity debt is below the ECB target of 0.2%, what other options the ECB have to pump its balance sheet. It has been only two months of the ECB QE and we have a very long journey ahead of us according the QE path laid out by Mr Draghi. These will be some of the key issues which will make him scratch his head and look for the answers on which he build his persuasion deck for the markets.
Traders are largely ignoring the Greece situation and are not paying attention to the possibilities which can take place if the Greek government fails to secure enough cash to run its day to day operations, perhaps they are still in celebration mood that the finance minister delivered on his promise by paying the bill for the IMF, but what about the actual big payments which are looming and will be due shortly. Do we have any solution in place for that or have we made any concrete progress on that end? You have to factor in these questions before you blindly press the buy button