Yesterday euphoria, today back to reality, the reality of what lies ahead in terms of economic growth for those countries that will experience severe austerity in the next few years in Europe and the reality that China won’t stop in trying to tame the inflationary pressures in their economy. China is the straw that stirs the global economic drink. European bonds continue to rally but stocks are lower as they focus on the earnings implications of what lies ahead and banks are under pressure as the 3 mo US$ LIBOR rate drop was only a one day event as they are up a touch today. China April CPI rose 2.8%, the fastest pace since Oct ’08 and .1% above estimates. Also, loan growth was very strong, rising 774b yuan, almost 200b above expectations and home prices rose 12.8% y/o/y, higher than expected and the fastest pace since at least ’05. All point to the growing odds of an interest rate hike in China. The Shanghai index fell to near a one yr low.
