Chinese Premier Wen Jiabao has made some very interesting comments of which investors should take notice.
The most important comments were that China would not yield to foreign pressure for the appreciation of its yuan currency, also called the renminbi, in any form and that China's efforts to maintain a stable yuan-dollar exchange rate during the 1998 Asian financial crisis helped the world.
So, wherever the dollar goes — up or down — the Chinese currency will remain pegged to dollar for some time to come.
That doesn’t mean the Chinese won’t continue to diversify their dollar dominated foreign exchange reserves.
The pace at which they will do that will remain an enigma.
Wen also said Chinese exporters were under great pressure due to trade protectionism.
He said figures from China's Ministry of Commerce showed that as of the end of November, 19 countries and regions have launched 103 trade related investigations against Chinese products.
Export value of Christmas-related products from China's eastern Zhejiang Province fell 28 percent in 2009, compared with average levels of previous years, due to waning foreign demand and trade barriers in various forms.
“It could have been better if our bank lending had been more balanced, better structured and not on such a large scale,” and while China's economy began to recover, it was too early to grade economic performance as the financial crisis was not over yet and much more work was required.
Also, China might need to pay some price and run into some unexpected difficulties as a consequence of the “moderately” loose monetary policy the government adopted in November of last year in tackling the global financial crisis.
On the Chinese property markets, Wen said: “As the property market is recovering rapidly this year, housing prices in some cities are rising too fast, which deserves 'great attention' of the central government."
He said China "will crack down on illegal moves, including hoarding of land and delaying sales for bigger profits … the government's tools in stabilizing prices were taxes, interest rates and land policies.”
Here I would like to add that statistics from Goldman Sachs show that over the past six years, the housing price hikes had outpaced income rises by 30 percentage points in Shanghai and by 80 percentage points in Beijing.
As an example, in Beijing, the housing price per square meter is seven times the average monthly salary.
No doubt the central government will take measures to deflate the Chinese housing bubble.
Besides all that, 10 government departments have jointly warned that China's economic recovery could be hampered by chaotic expansion, especially in the steel, cement, plate glass, coal chemical, poly-crystaline silicon and wind power equipment sectors.
On this item, Wen said: “To resolve the problem of overcapacity, the most important thing is to take economic, environmental, legal and, if necessary, administrative measures to eliminate outdated capacity and, in particular, restrict the development of high-energy-consuming and polluting industries with excess capacity."
He said "industrial overcapacity has been a global issue, which fundamentally results from less demand and a shrinking market.”
Finally, Wen said China would maintain its pro-active fiscal policy and moderately loose monetary policy to buoy the economy in 2010 as many uncertainties persisted at home and abroad.
On the U.S. stock markets, I’d like to say that we saw stocks moving higher in a classic Santa Claus rally while the bulls remained in control.
Interestingly, it were the techs and small caps that led the rally advancing around 5% in the last five trading days before Christmas.
No, the S&P 500 ETF (SPY) didn’t perform as strong but advanced 2 percent in five days and closed at its highest level of the year on Christmas Eve.
I can’t see anything else than uptrend as you can see on the chart hereafter and the new 52-week high affirms the underlying uptrend.
Support remains in the 107 to 108 area.
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