China Makes Fourth Interest Rate Hike This Year

China raised interest rates on Tuesday for the fourth time this year to stabilize inflation after consumer prices rose in July at the fastest pace in more than a decade.

The People's Bank of China said it was raising the rate that banks pay for one-year deposits by 27 basis points, to 3.60 percent, and the corresponding benchmark for lending rates by 18 basis points, to 7.02 percent from 6.84 percent.

Although the timing was a surprise, the action itself was not despite turbulence in global markets that has prompted the Federal Reserve to cut its discount rate and hold out the prospect of a reduction in the federal funds rate.
Most economists had forecast an increase, both to anchor inflationary expectations and to reduce the incentive for savers to take their money out of the bank -- where real deposit rates are deeply negative -- and pile into the surging stock market.

The Market......

Many people still bullish on the market. For me in the long run I have totally no doubt with them but in the near term, I still not Confidence to the market. The reasons which support my view as the below:

• The Subprime problems has already spread through worlwide from US to Europe and of course next will be Asia ( China and S'pore). A smart trader will definetely know the danger when he saw all the Central Banks are start activated their rescue plan to provide liquidity to the market where by the last time it only happened during 911 incident. This indirectly has shown us a very clear picture that the global equity market is really SICK.


• The Superb China market is another fear factors which we need to take into consideration. Just remember "Newton Gravity Law" ( anything which u throw up will definetely come down) F=ma; F=force m=mass a=acceleration. The higher the momentum and the speed then the greater the force it will be. This week Shanghai can up 200 points for you next week it might drop back 250 points for you too.


• 7 days later China Central bank will announce the report regarding which of the bank are actually engage to the Subprime problems ( ICBC, BOC, and CCB) are amongst the hot spots.


• Beijing 2008, according to the research China case is really a different story from others host Country. So it is difficult to predict the market will still bull after 2008. Moreover China has their triple bubble problems ( Quality control, Equity, Polllution)
• Goldman shares were sold down aggressively as investors worried that market turmoil had generated significant losses at two Goldman-managed hedge funds: the flagship US$8 billion Global Alpha and North American Equity Opportunities. Goldman Sachs executives said risk and leverage in those funds had also been reduced. Global Alpha has fallen 27 percent this year, with half of that decline coming last week.

What's happening now? While some hedge funds have put their "no redemptions" clause into action, most are deleveraging, hence the volatility due to the unwinding process

As a conclussion, Physchological problem is still the biggest barriers for the market today.

The Subprime again........ Haihz......

The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has

``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.

This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines. ``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''

The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers. Further losses may be in store even after the index, which tracks $32.6 trillion of stocks, advanced 0.7 percent this week. ``Given the stage of the credit cycle that we're in now, we would have to expect more negative news popping up,'' Beat Lenherr, who oversees $7 billion as chief investment officer for Asia at LGT Bank in Liechtenstein AG, said late yesterday in an interview in Singapore. ``The market sentiment is a bit nervous to the degree that every bad news is answered with selling.''
No Big Disaster Some investors say sustained consumer spending and jobs growth may help offset the impact of mortgage defaults.
A report due later today may show that payrolls rose 127,000 after a 132,000 gain in June, according to the median estimate of economists surveyed by Bloomberg. The jobless rate is forecast to hold at 4.5 percent for a fourth month, near a six-year low. ``Subprime will not derail the economy and we're not calling for a big disaster,'' said Hans Goetti, Singapore-based managing director at Citi Private Bank, which has assets of $100 billion in Asia. ``Consumer spending will not fall off the cliff as a result.''

The MSCI World Index today climbed 0.1 percent, its fourth gain this week, as investors speculated that better-than- forecast earnings will help offset the impact of mortgage losses.
Financial Stocks Down. A measure of financial companies such as Countrywide Financial Corp. has dropped 3.7 percent so far this year, the only group to decline within the MSCI World Index. Countrywide Financial, the biggest U.S. mortgage lender, said yesterday it has ``significant'' sources of short-term funding after the slump in demand for loans pushed some rivals toward bankruptcy.

Shares of Bear Stearns Cos. fell 13 percent last week after two of its hedge funds failed because of the subprime crisis. Merrill Lynch & Co. is down 3.6 percent this week, heading for its third weekly decline, while stock in Lehman Brothers Holdings Inc. is 5.9 percent lower.
The housing slump may extend into 2008 because of stricter mortgage standards and a glut of properties. IndyMac Bancorp Inc. yesterday said it is joining rival lenders in making ``very major changes'' to home-loan standards and charging higher rates because of a slump in mortgage securities. U.S. homebuilders rose yesterday, pushing a Standard & Poor's index of 16 such companies to a 4.1 percent gain, the measure's biggest advance in six months. The index has dropped 35 percent this year after the worst housing slump in 16 years left eight homebuilders nursing quarterly losses of $1.97 billion.

Conclussion:

No matter how bad the situation will be, it is important for all traders to minimize their casualties in this battle. For me... this time is a very good marrathon battle which make me feel very stressfull .

" Only through perseverance, high spirit and Hardwork will lead us to success"

U.S. Weakness Spells Trouble For Asia

Global economies are interdependent now !!

The Hong Kong and Korean markets have been weak over the past two days, and with good reason. They are very dependent on the U.S. consumer's appetite for their exports.
According to Lombard Research, 8% of Korea's entire GDP depends on exports to the U.S. For China, 7.5% of their GDP is due to exports to the U.S.

The Koreans and Chinese are well aware of this dependency, and they have been trying to shift more exports to Europe, with some success. Nine percent of Korea's GDP consists of sales of goods to Europe; 7% in China's case, according to Lombard Research.

The worry here is that if the U.S.'s consumption of imports suddenly slows down, domestic consumption in Korea and China may not pick up the slack.
There are additional risks to these countries: a rising chorus of protectionist rhetoric in both the U.S. and Europe.

The implications are clear: a sluggish U.S. economy will adversely affect growth in key emerging markets. This highlights the interdependency of the global economy

The Teddy Bear's Stage.....

Some Question to be ask tonight ( 27 July 2007 ):

What will happen today?

• The risk is to the downside, because the markets can easily drop another 3% to 5% before a sufficiently large number of people ask questions about oversold conditions.



• There has been a lot of technical damage, and we're approaching the weekend.



• Q2 GDP may not have the impact it usually has. Traders yesterday were already saying that the world was a different place from Q2 in light of the tightening in credit.



• In fact, we're seeing if the strong GDP may be a negative, since traders are now agitating for a rate cut from the Fed.
  

Can we get a sustainable bounce?

• If the market comes to believe that the Fed will step in and lower rates later in the year, that would help.


• Also, clear signs in a month or two that banks and brokers were able to sell some of their LBO(Leverage Buyout) debt will go a long way toward calming markets

What is the main bear argument?

• Credit and housing deterioration is creating a systemic crises that will lower the markets. Bears say the markets should not be 3% off all time highs with energy, credit, & housing major issues.
  
• Many stocks in S&P were viewed as takeover targets. A "closed" sign on the debt markets is bad news.
  

What is the main bull argument?

• Housing and credit issues do not represent systemic risk to the global markets


• Repricing of leveraged bonds is good


• At end of summer, when repricing occurs,much of the LBO debt will be sold, and stocks will get a lift in September and October when the markets realize the sky has not fallen.


• In the meantime, the banks are not losing money on the LBO mezzanine loans--they are in fact earning interest on it.


• No LBO deal has collapsed, and it's unlikely a major one will collapse.


• The global growth story is the key. IMF raised its global growth forecast. China is the largest contributor to global growth this year. They see faster growth In Germany, China, Russia, India.
  

Why is the market so volatile?

• The repricing of risk is the main reason.


• Some also note that the elimination of the short-sale tick rule may be a factor in the market's volatility. This rule, which required that shorting of a stock could only be done on an uptick or sideways move (but not a downtick), was eliminated a few weeks ago. It is difficult to sort this out, because the recent period of volatility also corresponds with the concerns in the credit market. Most agree that removal of the rule is adding some degree of additional volatility.
  

Can we get an oversold bounce looking like a possibility?

• Yes, at any moment. A surprising number of traders have covered some shorts position. But, any uptick is consider a correction for further Short !!

The Game is START !!!

U.S. stocks tumbled as concern about loan defaults increased, investors balked at funding takeovers and companies including Exxon Mobil Corp. reported earnings that missed analysts' estimates.

Home Sales
New homes sales in the U.S. fell 6.6 percent in June, more than the 2.7 percent drop economists had forecast, signaling no end to the real-estate slump that's weakened the economy. Purchases of new homes in the U.S. dropped 6.6 percent in June, the most since January, to an annual pace of 834,000 last month from a revised 893,000 rate the prior month that was less than previously estimated, the Commerce Department said.

Concern takeovers are costing more to finance also pushed down stocks. About $3.07 trillion in global mergers and acquisitions helped send the S&P 500 and Dow average to records earlier this month.

10-year Bond yield

The yield on the benchmark 10-year note fell 6 basis points, or 0.06 percentage point, to 4.84 percent at 11:01 a.m. in New York, according to bond broker Cantor Fitzgerald LP. It earlier declined to 4.81 percent, the lowest since May 22. The price of the 4 1/2 percent security maturing in May 2017 rose 15/32, or $4.69 per $1,000 face amount, to 97 13/16. Yields move inversely to bond prices.
Ten-year notes yield 21 basis points more than two-year debt, the widest the gap has been since June 26.
The government will auction $13 billion of five-year notes at 1 p.m. New York time.
``Once bucked 4.88 percent on the 10-year note, you're going to have pretty clear sailing to 4.78 percent''

U.S. Durable-Goods Orders Excluding Transport Decline

Orders for U.S.-made durable goods such as computers and telephone equipment unexpectedly dropped in June for a second month as consumer spending slowed. Demand for goods meant to last several years, excluding airplanes and motor vehicles, fell 0.5 percent, after a revised 0.2 percent drop in May

Consumer spending -- which kept the economy alive for most of the past year -- is slowing, leading companies to order less from America's factories. Federal Reserve policy makers have said a lack of business investment is a risk for an economy already hurt by the biggest housing slump in 16 years.

New Zealand Raises Key Interest Rate to Record 8.25%

New Zealand's central bank raised its benchmark interest rate to a record 8.25 percent and said borrowing costs may be high enough to contain inflation, triggering a decline in the nation's currency.

The chance of a rate increase at the central bank's next review on Sept. 13 is 11 percent, according to an index calculated by Credit Suisse. New Zealand's dollar bought 80.13 U.S. cents at 12:25 p.m. in Wellington from 80.36 cents immediately before the statement. The currency this week reached 81.10 U.S. cents, the highest since it began freely trading in March 1985.

Central banks worldwide are grappling to curb inflation pressures. Bank of England's policy makers this month increased their benchmark rate to 5.75 percent. The Bank of Canada this month raised its key rate for the first time in more than a year to 4.5 percent.
Traders increased bets the Reserve Bank of Australia will raise its benchmark rate to 6.5 percent next month after a report yesterday showed consumer prices rose faster than economists expected in the second quarter.