Just 4 hours after the Shanghai index closed down 3.3% to a 5 1/2 week low, the PBOC cut reserve requirements by 50 bps to 21%, one week after cutting them for rural co-ops. Thailand also cut interest rates by 25 bps but some were hoping for 50 bps. The Chinese deserve a thank you from European and US stock traders as it single handedly changed the mood of the morning. In Europe, Portuguese yields are spiking with the 2 yr yield up by 90 bps to almost 19% and near the recent highs of 20%. Their 10 yr is at a new high at 14.1%. Three measures of interbank lending stress, the euro basis swap, euribor/ois spread and US$ LIBOR are all wider again but part of this pressure is both month end and yr end influences. Notwithstanding a tough German bond auction last week, their 1 yr note yield is falling below zero soon after their Nov jobs figure was better than expected and their unemployment rate ticked down to 6.9%. With a smaller than hoped for EFSF fund about to be blessed, EU officials continue to explore help from the IMF to boost it further with resources they would source via loans from others (ECB?). On the ECB, Market News is reporting that more officials are becoming more “open to a more pro active role.” Another rate cut at least will likely come from the ECB next week notwithstanding another 3% CPI print today. In the US and at the same time some Fed officials think mortgage rates aren’t low enough even at 4.21%, multi decade lows, the MBA said refi’s fell 15.3%, down for a 3rd week to the lowest since July.
II: Bulls 44.2 v 47.4 Bears 30.5 v 32.6