Sentiments Weak But Risk Markets Off Lows With Help From China: April 5, 2012

Market sentiments remains generally weak today, still weighed down by fading hope on additional stimulus from Fed and worry on Spain after yesterday's poor bond auction. The poor bond auctions reminded investors that peripheral countries are still facing the challenges of recession and austerity. And the debt crisis is not going away yet even with recent progress in concluding to raise the firewall.

As Greek secured the second bailout while Italy, Portugal and Ireland seem to be doing well, focus is shifting to Spain. Nonetheless, selling pressure as somewhat eased in pre-holiday trading. Also, strong rebound in China stock markets helped stabilize Asian markets in general and lifted major indices off lows. Meanwhile, traders are also cautious ahead of tomorrow's non-farm payroll report from US.

The Shanghai Composite index staged a strong report in delayed response to news that China is doubling the foreign investment quota. Today's is the first trading session in China this week. The investment quota for China's Qualified Foreign Institutional Investor program, the so-called QFII, will be raised by $50b to $80b. Meanwhile, the Renminbi Qualified Foreign Institutional Investor program, or RQFII, will also be raised by CNY 50b to CNY 70b. Demand for investment in China was high as 80% of the original QFII capacity was already used up in first quarter while the RQFII quota was filled up totally. Raising the limit would allow more capital inflow to China to seek investment opportunities.

Looking ahead, BoE rate decision will be a focus today and the bank should keep it's policy unchanged. The accompanying statement would be brief as usual in these circumstances and would likely be a non-event. Swiss CPI, UK industrial production will be released too. From US, more employment data will be released including challenger job cuts and initial jobless claims. Canadian job data will be a major focus in US session and Ivey PMI will also be featured.