Shanghai index bounces sharply again

The Shanghai index rose for a 3rd day to near a one month high bouncing 2.7% after yesterday’s 2.9% rally. The Indian Sensex also rose to a one month high. China’s move is based on the belief that more policy easing will take place (and will eventually ease in India) after Dec Imports rose just 11.8%, the slowest pace since Oct ’09 and well below expectations of 18%. Many of their imports eventually work their way into exports which gained 13.4% in Dec, in line with estimates but the slowest since late ’09 not including the early ’11 Chinese New Yr slump. In European, banks deposited another record amount of money with the ECB overnight but the euro basis swap is falling to the cheapest since Oct 31st, US$ 3 mo LIBOR fell for a 3rd day, albeit barely and the euribor/ois spread is at a 7 week low. French IP and mfr’g production both unexpectedly rose in Nov and European bonds are bouncing. With respect to earnings in Europe and the US, AA is higher but PHG, TIF and Software AG are sharply lower. The NFIB small business optimism index rose to 93.8 from 92, in line with estimates but its the best since Feb ’11. While Plans to Hire fell and Increased Cap Ex plans were flat, more expected a better economy and higher sales.

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