Like a rocket that has fired it's stage one boosters, this market is taking off on QE power. At the moment, we have a very dangerous and combustible mix of rumors and minor stimulus – like this morning's 0.25% rate cut by China, which works out to roughly $100Bn in stimulus and is good for 10 points on the S&P.
As I mentioned yesterday, it's about $10Bn per point to buy a move on the S&P and it's now a question of what kind of rally the G20 are prepared to pay for this round. This is the first reduction since the depths of 2008's financial crisis, and follows on the heels of China's banking regulator delaying for a year stricter bank capital rules. Beijing has also been seen fast-tracking previously tied-up infrastructure projects. In another easing move, banks will now be allowed to offer loans at a 20% discount from the benchmark rate, whereas before they were allowed just 10%.
China’s biggest auto-dealer association said carmakers need to scale back their sales targets or sweeten incentives because the worsening glut of vehicles across the nation’s dealerships is unsustainable. Average inventory carried at Chinese dealerships bloated to a level exceeding two months of sales by the end of May, compared with more than 45 days at the end of April. That’s forcing dealers to deepen discounts and sell cars at a loss to meet mandatory sales targets set by automakers, he said. “Dealers can’t shoulder the burden anymore,” said Luo Lei, whose association is authorized by the central government and represents 2,100 dealership groups. “Their backs are broken.”