China Worries Pressured Stocks, Lifted Dollar

Risk aversion dominates the markets as the week starts as worries over credit crunch in China weighed, in addition to last week's Fed comments.

 

Major European indices turned south after opening flat. FTSE 100 drops most by more than -2% at the time of writing.

 

Meanwhile, US stock futures also point to sharply lower opening.

 

Dollar index extends last week's rally and reaches as high as 82.49 so far today. In the currency markets, Canadian dollar is the weakest one so far today while dollar is generally firm.

 

China's interbank rate plunged following the sharp rise last week as the PBOC signalled injection of funding to the market. While it appeared absurd that the PBOC adopted tightening measures last week despite the spike in money market rates, the announcement made today indicated that the central bank's upcoming tools would be more accommodative. Yet, the PBOC warned that commercial banks should manage the liquidity with caution, signalling helps the authority is not unlimited

 

German Ifo business climate improved to 105.9 in June, inline with expectation.

 

Current assessment gauge dropped to 109.4 versus consensus of 109.6. Expectations gauge improved to 102.5 versus consensus of 102. Ifo noted in the release that "although assessments of the current business situation are slightly less positive, firms are increasingly optimistic with regard to their future business outlook." And, "the German economy holds its course". Also, it noted that German industry is "pinning strong hopes on exports".