Markets: China’s Cut To Bolster Market's Momentum

A positive move from China at the weekend has added to signs the world economy isn't tanking as many forecasters believed it would.

China's move came as momentum for agreement on Greece grew at the weekend and could be in sight tonight, our time.

China's central bank cut the level of reserves banks must hold for the second time in nearly three months.

The PBOC delivered a 50-basis-point cut in banks' reserve requirement ratio, effective from next Friday, February 24, finally doing what the stockmarket's near 10% rise in the past six weeks had been telling us was coming.

It would cut the reserve requirement ratio for the biggest banks to 20.5% from 21%, injecting an estimated 400 billion Yuan ($US63.5bn) into the banking system that could be used for lending.

It follows data released earlier on Saturday showing house prices failed to rise in any of the 70 major cities in China in January compared with December.

While it's a move to loosen monetary policy in China as the economy continues to slow, it echoes moves in Japan and the UK this month by central banks to further loosen monetary policy to arrest the slide in both those economies and to ward of deflation.

China's moves (and others to make more money available for small businesses and ease liquidity strains in the country's nascent money markets, are aimed at trying to make sure the economy doesn't drop into a 'hard' landing and slow too suddenly.

The US economy's rebound seems to be strengthening, Europe is doing better (except for Greece and Portugal), Asia is still buoyant and Australia is not the basket case the job cuts and gloomy commentary suggests it is. Retailing isn't in the dumps and manufacturing is being battered by change, but hasn't thrown in the towel.

Tonight, our time, Greece could be on the way to a much needed second bailout that will postpone the day of reckoning for another year, and give the eurozone more time to sort itself out and for the economy to recover.

The Greek government reached further agreement over the weekend on cuts and other moves and has decided to run a bon exchange in March covering 200 billion of old bonds, for new securities with a lower rate and some cash incentives attacked.

The government is looking to cut the 200 billion by 70% and legislation will be introduced to force hold out investors to exchange, removing a possible stumbling block.

All this and more has seen the MSCI world stockmarket index rise almost 10% from the start of 2012.

In the US on Friday, the Standard & Poor's 500 index came within a quarter point of touching a three-year high of 1,363.61 set in April of last year.

The S&P 500 index has risen 8.2% so far this year and added 1.4% last week.

The S&P 500 has bounced 24% from its low last October.

Once the S& P 500 rises above that level of April last year, it would mean all the losses since June 2008 had been clawed back. (But at considerable financial cost to investors).

Ten-year US Treasury yields climbed one basis points to 2.00% and look more and more unlikely to dip again in a sustained way; oil ended at a 9 month high, gold was flat, but copper fell and the euro rose to end at $US1.3151.

The Dow rose 45.79 points to 12,949.87, the highest closing level since May 2008 and the Nasdaq index this week hit its highest level in more than a decade (again).

The Dow rose 1.2% last week and the Nasdaq, 1.7%.

European markets again rallied (and are up 8% so far this year) and Asian markets had another indices also rallied.

That was despite confirmation that the eurozone experienced negative growth in the December quarter, with even Germany sliding into the red.

But France surprised by holding out and growing slightly.

The market recovery has been driven by the upturn in the quality of economic data from the US, and the European Central Bank's injection of almost 489 billion euros of cheap three-year loans to the continent's banks, which have eased, for now, those terrible fears of late 2011 that a bank or banks might fail because of a lack of liquidity.

US jobless claims have fallen to near a four-year low and the distressed housing market continues to show signs of steadying.

Late Friday the US Congress approved the extension of a 4.2% payroll tax cut (that will affect 160 million people) through the end of this year, as well as extend prolonged jobless benefits and prevent payment cuts for Medicare doctors.

And to make sure Europe gets through the next month or so, the ECB has another loan auction at the end of the month.

Eurozone government borrowing costs, especially for Spain, Italy, Ireland and France, have also fallen sharply this year.

Even Greece was able to raise short term funds last week.

Fitch Ratings upgraded Iceland's economy to investment grade on Friday (after three years in the cold).

The senior finance ministry officials from all 17 eurozone countries had a conference call overnight Sunday to sort out the details of the Greek deal ahead of the meeting tonight of their political masters.

Australian shares posted modest gains on Friday, but still lost 1.2% for the week as local investors worried about the gloom and Greece and missed (again) the data from offshore for the day but not enough to reverse the market's third consecutive weekly retreat.

The ASX200 index rose 14 points or 0.3% on Friday to end at 4195.9.

Australia has lagged other markets, up only up 3.4% since the start of 2012. It's down 1.5% for February so far.

The All Ordinaries added 16.1 points on the day, or 0.4%.

The Aussie dollar added around 0.3% for the week against the greenback, closing just over $US 1.07 in New York.

Elsewhere in Asia, other markets rose on Friday.

Hong Kong's Hang Seng Index added 1%, Japan's Nikkei Stock Average finished 1.6% higher 1.6%, and South Korea's Kospi climbed 1.3%, while Shanghai's Composite index rose fractionally.

For the week, Shanghai was up 0.2%, the fifth week of gains, Tokyo jumped 4.9% and Hong Kong closed up a solid 3.4%.

The Shanghai market has bounced 9.7% from its low in early January.

European stockmarkets ended higher on Friday as renewed hopes for a Greek bailout boosted investor appetite for riskier assets, although gains were tempered late in the session by slightly weaker-than-expected leading economic indicators from the United States.

The Stoxx Europe 600 index rose 0.6% to close at 265.93, its highest close since last July. It ended the week up 1.8%.

Greece's market jumped 5% on hopes of a bailout settlement.

Markets rose in every major economy except Norway. France's CAC 40 Index and Germany's DAX index both added 1.4% and London's FTSE 100 ended up 0.9%.

In commodities, US Crude-oil futures rose to their highest in nine months on Friday night, our time as the general upturn in confidence offset worries about Iran and Greece.

New York WTI crude for March delivery rose 93 cents, or 0.9%, to end at $US103.24 a barrel, the highest close since May 10.

That left oil up 4.6% for the week in New York, although that market is losing its pricing leadership due to continuing oversupply problems and other technical factors.

The Brent marker crude traded in London is now increasingly regarded as the equal to the WTI contract in New York.

Certainly other marker crudes, such as Tapis in Singapore seem to be priced more and more off Brent than WTI in the US.

In London, Brent crude for April delivery ended Friday fell 53 cents, or 0.4%, to $US119.58 a barrel.

Brent crude rose 2.4% on the week.

The spread between Brent and WTI ended the week at just over $US16 a barrel, but was wider during the week.

Gold finished the week flat after dipping on Friday in New York trading.

Comex Gold for December delivery fell $US2.50, or 0.1%, to settle at $US1,725.90 an ounce in New York Mercantile Exchange.

The World Gold Council on Thursday revealed record investment demand lifted global gold demand to an all-time high in 2011, with China and India generating 49% of demand.

Those two countries also accounted for 55% of global jewellery demand for gold last year and the Council expects China to move past India in the next year as the world's biggest consumer market for the precious metal.

China's gold consumption in 2011 jumped to 769.8 tonnes, up 20% from a year earlier.

Meanwhile, India's demand fell 7% to 933.4 tonnes, as a weak rupee raised the cost of gold in local currency terms

"It is likely that China will emerge as the largest gold market in the world for the first time in 2012," the Council's Marcus Grubb said in commentary on Thursday.

"What is certain is that the long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply side activity."

Comex silver for March delivery fell 15 cents, or 0.5%, to $US33.22 an ounce.

Silver lost 1.1% this week, and is now down for three consecutive weeks.

Copper for the same month lost 8 cents, or 2.2%, to $US3.71 a pound.

Copper lost 4% this week, and has fallen for the past two weeks.