China Stimulus Expectations Grow

The HSBC Chinese Manufacturing PMI released overnight printed in negative territory, sliding from 49.2 to 48.9 on expectations of a modest rise to 49.4. The contraction in manufacturing conditions highlights the continued struggle facing Chinese policymakers as they eagerly adjust policy to offset a slowdown in economic expansion. Nowhere is the softness in the economy more evident than the slumping revenues in gambling hub Macau which has seen casino revenue tumble 39% month over month, capping 11-straight months of declines. Bets on stimulus in the form of quantitative easing and other monetary easing measures have spurred gains in benchmark equity indices. Helping the ascent of the best performing stock market is the rapid buildup in new margin trading accounts, with over 4 million accounts opened in the fourth week of April. Stimulus bets could propel the Australian dollar higher despite an upcoming policy decision in which the RBA is expected to cut rates 25 basis points.

The optimism of replacing firebrand Finance Minister Varoufakis as lead negotiator with Greece’s creditors failed to see a deal reached over the weekend as very large looming payments lie ahead of Greece. The latest round of negotiations have not managed to close the gap between sides as Greece desperately seeks to close a deal in May considering the increased ECB restrictions hampering the ability to fight off insolvency in the region. Although the Greek Government has been eagerly pointing to the existing liquidity problems as rationale for speeding up the negotiation process, Europe seems fixated on the reform packages being offered by Athens. Any whiff of noncompliance or intransigence could signal the end of talks with creditors leaving the table and letting Greece fail. Euro Area regional equity benchmarks fell last week as the rout in sovereign debt accompanying Mario Draghi’s quantitative easing program bled over into stocks.