A brand new week with less thrilling events will kick start the European markets. With the UK election’s uncertainty behind us, investors will look towards the basic fundamentals and will make adjustments to their portfolios as the BOE will soon enough change their language with respect to a rate hike.
If you are thinking that Mr Carney will not surprise you with a hike in Internet rate decision then perhaps, you may need to readjust your expectations because we believe that the BOE is going to take a more aggressive approach to tighten the belt further around their monetary policy. The fundamentals are stout and the economic data are brawny so it will be difficult to think of a situation why the monetary policy should remain at current level. This week’s economic data, such as unemployment and wage growth rate could start pulling the nails out of the box so that rate hike chatter can fire up the market.
Nevertheless, Greece will remain the ultimate worrisome for traders once again this morning as the hopes are minuscule if we are going to get any positive outcome of today’s meeting between the two parties- lenders and creditors. If no money is released, which is the top notch outcome, Greece will have to find other ways to pay another hefty bill to the IMF tomorrow. With new negotiation team in place in Greece, still there is no positive outcome on paper except a few polite dialogues between the two parties. We certainly need something more solid than that otherwise the country will move one more step closer to file for Euro exit or being kicked out of the Eurozone.
The last piece of the puzzle for investors will be to deal with the Chinese bank’s decision to cut their interest rate. Another fresh effort or using the same old pill to resolve the stimulus growth concern. We believe this pill has reached its expiry dates and the central bank should think of a new method which can address the fundamental behind them.
History tells us that the decisions such as a rate cut or putting more economy have far less effects on the actual economy than on the equity markets, which are already in a bubble stage. The PBOC’s rate cut decision is going to inflate the junk bond bubble further and implications of that bubble bursting are far more superiors as compared to the medicine which is being used under the name QE.