Ouch is all I can say.
For once, the markets reacted adversely to a statement from Greece, this time being that euro zone finance ministers failed to find enough cash to get them through a few more years to ultimately get them debt relief into a few more years, making the IMF threatening to leave the discussions. New talks on Monday, November 26th.
The euro shaved around 80 pips from the pre-announcement rumour that there was an agreement, which eclipses France’s downgrade magnitude. Spell “priced in” for me, will you? Equity indices tumbling all over Asia as these news hit the wires.
Meanwhile in Japan that couldn’t hold equity gains in the face of euro- related risk selling, trade figures came in at atrocious lows. Election point: Sadly, Abe. Lowering the yen and his commonly seen “business friendliness” which in this case will likely just drive capital out of Japan even faster, reduce the long term prospects for companies internally and use the net tax income in yen terms on… infrastructure projects if history is any guide. So double whammy on the yen weakness acceleration – trade balance figures coming in horribly bad, and then increased probability of Abe winning with his populist ideas for reinvigorating Japan.
It’s a fight between more-of-the-same and what the Japanese have so long longed for – a good shake up of the system. The only problem is that the shake-up they have hurts in the short term, while the remedy for that pain is an accelerated pace of failed policies that will cause more harm for them in the medium term but likely truly reset the system. Ready or not?
In China’s case, probably ‘not’. The Shanghai Composite is below the psychological level of 2 000, and not looking good in HK either. Even though we get reformist pressures, the market is not looking so peachy. Consider the Shanghai Composite slide, and the Hang Seng Index rally, and now imagine that this industrial production powerhouse sits on the same P/E as a banking and property export city…