Apple - broke out of a multi-month range in September and has continued to improve on that performance. Today's weak open formed a similar sized reaction to that posted three-weeks ago and a sustained move below $295 would now be required to question the consistency of the short-term uptrend and suggest that a mean reversion towards the 200-day MA is commencing.

Gold - posts the largest pullback since early July, is testing the 10-week uptrend and last week's low. A clear upward dynamic is now required to question scope for a further consolidation of recent gains and the odds of mean reversion correction towards the 200-day MA have increased considerably.

IBM - pulled back sharply to break the short-term uptrend and formed a weekly key reversal. A sustained move to new highs is now required to reassert the medium-term uptrend and offset scope for a consolidation of recent powerful gains.

Goldman Sachs - hit a medium-term peak a year ago but found at least short-term support in July and has posted a succession of higher reaction lows since. It rallied from the $150 level today and a sustained move below $140 would be required to question current scope for further higher to lateral ranging.

Siemens - has formed two relatively equal sized consolidations since breaking out of its base in July 2009. It found support in the region of the 200-day MA on a number of occasions since and broke upwards from the most recent range last week. A sustained move below €72 would be required to question medium-term upside potential.

Nestle - continues to range below the psychological CHF55 level in a marked loss of momentum. An upward dynamic would be required to indicate demand is returning in the region of the 200-day MA and it needs to hold above CHF50 if medium-term top formation development is to be negated.


Start of a rate hike Cycle - Thanks to a subscriber for this interesting report by Jun Ma for Deutsche Bank which may be of interest to subscribers. Here is a section:

The PBOC announced this evening that it had decided to raise the benchmark deposit and lending rates. We view this move as the beginning of a rate hike cycle that may involve two more rate increases (each 25bps) in the coming 12 months, and which should pave the way for accelerated deposit rate deregulation. In our view, it is a very important signal that a policy consensus has been reached to tolerate lower GDP growth, and we believe it demonstrates the government's determination to resolve the negative interest rate issue and to use interest rate policy to contain speculative property demand. We think this policy move is most negative for the property sector and other highly leveraged industries, broadly negative for commodities, but may be mixed for banks.

Today's PBOC decision to hike rates, which surprised most market observers, is broadly consistent with our expectation (see China section of our Asia Economic Monthly published on 11 October and our macro commentary published on 13 October). However, the decision to symmetrically raise both the one-year lending and deposit rates by 25bps is a surprise to us (as we thought the one-year lending rate should go up 18bps and the one-year deposit rate should rise 27bps).

Eoin Treacy's view Over the last few months the focus of commentary in the USA and Europe has been on the threat of deflation; or probably more accurately disinflation. However this completely ignores the very real inflationary pressures mounting in higher growth regions which skirted the worst effects of the credit crisis. Wage pressures in China have been escalating as the cost of living, not least housing, increases. Additionally, food and energy prices tend to form a much greater component of inflation measures in Asia and Latin America, so continued high grain and bean prices inevitably have a more immediate effect on CPI rates for these countries.

Today's interest rate hike raises the already low deposit rate to 2.25% but it remains accommodative when compared to a headline inflation rate of 3.5%. This would suggest that monetary authorities continue to tread a careful path between fostering growth and attempting to engineer a soft landing in the housing market.

We have contended for a number of months that additional supply has been the greatest impediment to Chinese A-Share performance. This has been less of an issue since the mid-Autumn festival holiday and the Shanghai Composite has rallied impressively. Arguably, the Index is a little overbought in the very short-term, so some consolidation of recent gains is a possibility. However a sustained move below 2700 would be required to question potential for further upside.

Longer-term, it is easy to forget that China exerted a disinflationary influence on the global economy for a decade as it became the world's low cost manufacturing hub. With commodity prices on a long-term upward trajectory and wage pressures squeezing already tight margins, the chances that China will begin to export inflation have increased.


Rare earth elements undervalued by Guo Chaoxian and China to reduce rare earth export quotas by Zhang Qi and Ding Qingfen - Thanks to a subscriber for these two topical articles for China Daily which may be of interest to subscribers. They are posted without further comment except to highlight this link to Comment of the Day on October 15th. Here is a section from the latter:

China will further reduce quotas for rare earth exports by 30 percent at most next year to protect the precious metals from over-exploitation, said an official from the Ministry of Commerce.

He added that the country is now facing the possibility that reserves of medium and heavy rare earths might run dry within 15 to 20 years if the current rate of production is maintained.

Export quotas will continue to be axed in the first half of next year, said the source who declined to be named.

China, which produces 95 percent of the world's supplies, has reduced 2010 production levels and slashed export quotas by 72 percent for the second half to 7,976 tons, according to ministry data.

Rare earths, composed of 17 elements, are used in a number of high-tech processes ranging from wind turbines and hybrid cars to missiles.

Domestic deposits dropped to 27 million tons by the end of 2009 - that's 30 percent of the world's total explored reserves - from 43 million in 1996, said Chao Ning, section chief of foreign trade with the ministry at a Beijing conference.