Q + A - how the markets respond to the rise of China rates?

By Jason Subler and Vikram Subhedar

SHANGHAI HONG KONG (Reuters)- China's Central Bank raised interest rates on Christmas day, go faster than many analysts and market participants expect its campaign against inflation.

Many observers thought the Bank of China (PBOC popular) could hold off the coast by increasing the rate for the second time since mid-October until at least the new year, especially after Chinese money market rates spiked in the last week, which means that many investors will be taken by surprise by the last step.

Here are some questions and answers on how markets can respond to the crossing.

How the Chinese shared react?

In General, a move by 25 basis points is too small to generate a sustained bond strong. Whereas less than Shanghai reflex moving to open the Monday is possible, optimism for Chinese actions in 2011 is likely to encourage investors to "buy the dip" and send Shanghai markets higher on the day. Who can send the Hong Kong market closed Monday, rained on Tuesday.

Sectors most at risk of a leg below are companies related to commodities, that have exceeded this quarter the price of raw materials and energy are rallied at the end of the year.

Hong Kong .HSCIE energy sub-index of the shares is 11.1% this quarter. CSI Energy Index .CSIEN shares listed on the continent is 22.5%. Breaks out gold, silver and copper prices boosted the shares of the mining companies. That trade is likely to see some progress.

Chinese banking shares, more heavily weighted in Shanghai and Hong Kong markets sector impact is likely to be neutral in the short term. Increase in interest rates are benefiting banks net interest margins, but uncertainties about the new loan and tightening quotas will likely be cap gains.

On maps, Shanghai composite as well as the Hang Seng index seek a little weak in the short term. Shanghai closed below the moving average of 250 days Friday, while Hang Seng composite forming a pattern of topping "head and shoulders" on daily charts as well as weekly.

What other Asian Equities?

Asian markets will lead the response to the latest rate rise of China. Nikkei. the Japan N225 will be the first major Asian index to open with the KOSPI Korea.

While the Nikkei could open more low, which is little likelihood that disrupt the constant rise observed in seven weeks. It has actually outperformed the rest of Asia since increase rate of China in October. The Nikkei is about 10 per cent since then to an increase of 2.7% for the MSCI Asia AETERNA Southeast Asia stocks are likely to see some of their stellar earnings dressed. Indonesian and Thai markets are among the performers top of the page in the world including this year as investors money pumped into the emerging markets in Asia.

The last Chinese rate increase for the month of October came after that Chinese markets were closed for the day. The move has prompted a bit of a slump in Europe and the United States, with markets did not know how the Chinese investors would react. The Shanghai composite opens over the next day, help stabilize the markets. This time, the Chinese market will probably lead the reaction: a reaction measured in China would have given the tone for the rest of the market.

Will be mounted products Hurt China rates?

Markets in China probably see a strong negative correction Monday, a chance some could test the limits of the recently expanded disadvantage. The possibility to receive pricing or near their more strong during the years before the end of the year could mean the correction period may exceed losses after the last increase in interest rates in October.

Who sent the higher dollar, gold slipped on over 2%, oil is fell to 4%, copper has lost 2.5%, while wheat fell 2.7% and corn, 2 percent.

But analysts said it did not spell the end of the demonstration products, as markets, including copper, corn and soy - imports from China - key corrections would be considered buying opportunities.

How Big is the reaction to G10 currencies?

Reduced due to holidays in key financial centres trading volumes will limit the reaction in the G10 currency markets and make the price action whippy.

The greatest response may be in the Australian dollar

AUD = by links between China and the Australia wholesale trade and use of the Australian as a proxy for the Chinese economy market. Higher rates may intercept traders by surprise and drive to take advantage of capture of Paris on the Australian.

The Australian has won the most against the dollar in December among peers G10, 4.8 percent to US$ 1.0053, receiving a return from the end of the year in risk-taking. It is also in recent weeks become a most popular game in the euro, reaching 4% at the $1.3035 for one euro.

Aussie U.S. dollar hit a low daily for the last six business days - moving below US$ 1.0018 low Friday suggests that the upward trend is losing momentum.

How NDFS Yuan Will react?

The rate hike may be a catalyst for further transfer downward pressure not deliverable dollar/yuan. The tenor of a more liquid year CNY1YNDFOR =, which deals with finished Friday at 6.50, can see the largest decline in the coming days.

The combination of two interest rate rises and three Bank reserve requirement increases to the two months suggests Beijing is squarely focused on inflation and could in fact use the Yuan to help fight against imported inflation rising oil and other raw materials prices to increase further in the coming months.

That could set the NDF market for a moderate correction.

NDF implied year expectations that yuan would appreciate as much as 4.3% against the dollar at the end of October, before a series of triggered lower required attachments start taking advantage of year-end with implicit recognition in a year at 2.1%.

View the original article here