1.Wall Street Journal - China's central bank today raised interest rates for the first time in nearly three years, the strongest move yet by Beijing to withdraw stimulus that helped the economy weather the global slump but now threatens to fuel inflation.
2.The news shook up currency markets, with the U.S. dollar jumping. The move is likely to slow down China's rapid growth and hit its demand for raw materials, in turn putting pressure on the Australian and Canadian dollar, which are highly dependent on commodities exports.
Comment: As the USD strengthens so equity markets fall.
Interesting question: Who leads global markets today? When China sneezes......
3.Clearly, the biggest question and argument at this time is whether we're heading into deflation, inflation, stagflation -- or deflation and then inflation. Nobody has a clear answer to this puzzle, so "why push it? What's wrong with just waiting and observing."
4.The Fed is obviously and openly worried about deflation (or as they put it, "not enough inflation") and they're worried sick about unemployment. Many believe that the Fed is ready to sacrifice the dollar if that's what it takes to beat deflation.
5.On November 3 the Fed Open Market Committee meets, and the widely-shared expectation is that the Fed will trigger QE2, meaning a new wave of quantitative easing.
The last thing the Fed wants is to disappoint the markets -- thus the markets are primed and ready for QE2.
Question: Has QE2 been fully discounted?
Remember the rule: A country's economic power is measured by the strength of its currency.
6.We can't solve problems by using the same kind of thinking we used when we created them - Albert Einstein
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