Equity markets stabilised overnight, after the massive sell-off in global equities, to open the new week. The Chinese Real Estate giant, Evergrande, triggered the market fears and the collapse in equities. The theory of an imminent default of Evergrande, will be tested Thursday, or will the Chinese Government bail them out and prevent a massive hit to global markets? Attention will be focused on Central Banks’ this week, with the Bank of Japan to announce their latest monetary policy today, followed by the Fed and the Bank of England. The Fed has indicated a ‘tapering of QE’ was coming, but the Bank of Japan will not be tempted to change policy, while the Bank of England will be the most likely to act. The UK is experiencing resurgent inflation and will likely act on QE and indicate some interest rate rises. The GBP remains downtrodden, trading 1.3650, while the EUR flails around 1.1700.
The RBA minutes revealed the bank will defer any ‘tapering to QE’ under the difficult circumstance surrounding the lock-downs in NSW and Victoria. The political devastation caused by these lockdowns is immense, but the RBA considered the situation a ‘delay to the economic recovery, rather than a derailment’. Interest rates will remain at historical lows until 2024. The Australian Government and the RBA have pinned all hopes on the success of the vaccine. We shall see. Look to the UK and Israel as a guidance as they are highly vaccinated developed economies. The Chinese instability has also impacted the Australia markets with the collapse in commodities lead by iron ore prices. The AUD trades at 0.7235, while the NZD tests the Big Figure, of 0.7000 on the downside.
All eyes turn to the Bank of Japan, the Fed, the Bank of England and Evergrande!