Morning Call For November 21, 2014

OVERNIGHT MARKETS AND NEWS

December E-mini S&Ps (ESZ14 +0.69%) this morning are up +0.65% at a record high and European stocks are up +2.03% at a 1-1/2 month high after China cut interest rates for the first time in over 2 years. European stocks and government bonds received an additional boost after ECB President Draghi reiterated his commitment to raising inflation as fast as possible, which suggests the ECB may implement full-blown quantitative easing. Asian stocks closed mostly higher: Japan +0.33%, Hong Kong +0.37%, China +1.83%, Taiwan +0.14%, Australia -0.22%, Singapore +0.90%, South Korea +0.38%, India +0.95%. The Asian markets have yet to react to the news that China lowered interest rates as the PBOC cut rates after the Asian markets were closed. However, during today’s trading session the Shanghai Stock Index rallied after the PBOC added money to the banking system to stem a cash squeeze. A cash shortage stemming from new share sales spiked China’s 7-day repurchase rate, a gauge of cash availability in the banking system, by as much as 322 bp to a 9-1/2 month high of 6.50%. According to two people with direct knowledge of the matter, the PBOC offered 50 billion yuan ($8.2 billion) into the banking system using Short-term Liquidity Operations in an attempt to bring down money-market rates. Commodity prices are mixed. Dec crude oil (CLF15 +2.43%) is up +1.86% at a 1-week high. Dec gasoline (RBF15 +2.47%) is up +2.15% at a 1-week high. Dec gold (GCZ14 +0.47%) is up +0.22%. Dec copper (HGZ14 +1.32%) is up +1.37%. Agriculture prices are lower. The dollar index (DXY00 +0.64%) is up +0.71%. EUR/USD (^EURUSD) is down -0.85%. USD/JPY (^USDJPY) is down -0.22% as the yen fell after Japanese Finance Minister Aso said the speed of the yen’s depreciation has been “too rapid.” Dec T-note prices (ZNZ14 -0.09%) are down -5.5 ticks.

The People’s Bank of China (PBOC) cut interest rates for the first time since Jul 2012 as they lowered the 1-year deposit rate by -25 bp to 2.75% and cut the 1-year lending rate by -40 bp to 5.60% effective Nov 22.