The equity markets took it on the chin today as the markets where lead down by financial institutions. Numerous factors lead to today’s selloff. A combination of weaker than expected economic news in the US, combined with heightening fears that China will tighten and proposed changes to trading operations in the US banking sector, all proved too much for the market to handle. The S&P 500 closed down 20 points to 1116. Although the dollar started off very strongly today, riskier currencies rallied back to unchanged by the end of the NY session. The S&P 500 is just holding on to its 50 day moving average.
On the economic front today, China released GDP and CPI figures. GDP rose 10.7% y/y (vs 10.5% expected). This is the sharpest increase since Q407. Additionally, Q304 GDP was revised higher to 9.1% in Q304 (from 8.9% prior.) Adding to the mix, December CPI accelerated to a 1.9% y/y pace (1.4% exp) from 0.6% in November. Today’s developments cut two ways: stronger growth is a positive for the global economy and supportive of the foreign currencies, particularly the commodity currencies. On the other hand, the further tweaking of rates by the PBOC, after raising the 1-year bill rate 8 bp earlier in the week and the increase in reserve ratios on some banks yesterday has generated concern the timing of a rate hike will come sooner than previously expected.