Morning Note - Stocks slump as China raises rates

The market fell sharply overnight on back of disappointing company results in the US and a surprise move by China to increase interest rates (by 0.25%) in an attempt to curb inflation. Call me naive but China raising interest rates suggests strength in an economy rather than weakness (Australia is a case in point) but instead sellers stepped in and whacked commodities, whacked commodity currencies ( and moved into the USD. I'm not sure how China raising rates is a positive for the USD given that capital generally finds its way to higher yield (which theoretically would be away from the USD) but thats the market we're dealing with.

Is worthwhile taking a look at Commodities as there were some spectacular falls overnight. GOLD was off nearly $40, Crude Oil was down 3.88% sending the Commodity Index lower by more than 5%. Risk was certainly off the table and one would presume that this was on concern that China's increase in interest rates will curb growth and therefore demand for commodities - or thats the rational traders were using. 

The DOW JONES lost -165 points or -1.48% to close at 10978. In London the FTSE 100 lost -38 points or -0.67% to close at 5703. Locally, SPI FUTURES were matching down 36 points. In the US the DOW was actually down more than 200 points at one stage however some buyers did step in at the close. 

We'll be sharply lower on the open but it will be interesting to see how much HOT money is in the market - thats speculative money just trading the momentum rather than the fundamental value in stocks. Still, the consensus in the dealing room this morning is that the market looks ripe for a sharp pullback. My concern here is that perception changes on a daily basis. Those guys that were happily buying stock last week have now turned intensely bearish overnight. That might be the right call however I'm more in the camp of a pullback that will see buying support step in.