How much policy divergence will we see between the EU and the US? Big question surrounding China debt

Damage done to Draghi’s credibility, says Marc Ostwald, Strategist at ADM Investor Services, as he joins today’s Tip TV Finance Show to speak on the Venezuela elections, the EU-US divergence play, and the key concern with China.

Venezuela: A major political shift

Ostwald mentions that people are now becoming more nationalist in Europe, including Poland, Hungary and France, which is the need of the hour while problems like migrant crisis are being faced in the union.

Ostwald further speaks on Venezuela, and how the opposition won an overwhelming victory, with the economy still mired in economic turmoil – seeing 100% inflation and contraction in GDP terms.

ECB: Damage done to Draghi’s credibility

The ECB completely failed to lean against market expectations, with the markets being crystal clear on seeing a large easing program, says Ostwald. He further adds that Draghi would have thought he could have persuaded the council, but failing to do so, and remaining short of market expectations was damaging to his credibility.

The consequences of ECB’s action would be substantial for the financial markets, with bigger leveraged funds losing between 3-5% on a single day, after the EUR moved higher.

People aren’t enthusiastic about the EUR, but majority saw burned short positions amidst the thin December market.

Focus shifts on the Fed’s communication

Ostwald believes that how the fed moves ahead will be interesting for the single currency and the dollar. He feels that the focus will now shift to Fed’s trajectory for rates.

Investors will now have to evaluate the perspective of short-term rate differential, with the major theme expected to be divergence.

China: Bad debts a major problem

Ostwald believes that the consensus for Chinese growth ahead is for an above 6% number, but the data points suggest things aren’t as relevant as to what’s going on. With FX reserves data due ahead, Ostwald comments that the Chinese should be seen as accumulating reserves, if not, they would be trying to prop up the Yuan in a more significant way.

Speaking about the key thing in China, Ostwald believes that the bad debt scenario in China is important.