The market rallied today (9/13) because China and Italy are discussing a bond purchase program. Promptly traders and their algo cousins pushed up the S&P, which was dwindling at near-flat or negative. Great news. China will buy Italian bonds, and this will help avoid the big bad Eurozone crisis.
Where have I heard this news before? Oh, yes, in October ’10, when China bought Greek bonds. See http://www.reuters.com/article/2010/10/02/greece-china-wen-idUSATH00570720101002. Lot of good that did to Greece, which is now almost certain to default.
So, why are the Chinese doing this? I have no idea.
But, Cullen Roche at Pragmatic Capitalism has a thought. See http://pragcap.com/the-irony-behind-chinas-european-bond-buying
Update: As expected, China expects concessions for their bond-buying, but well beyond what Cullen Roche expected.
But the premier appeared to draw a direct link between providing more help and investment and Europe’s decision to grant China full market economy status. Under World Trade Organisation rules, China is expected to be granted this status automatically by 2016.
“If EU nations can demonstrate their sincerity several years earlier, it would reflect our friendship,” Mr Wen said, adding that he was hoping for a “breakthrough” on this topic at a scheduled meeting with EU leaders in October. Source: http://www.ft.com/intl/cms/s/0/b234ad8a-de98-11e0-a228-00144feabdc0.html