Keystone's Wake-Up 4-5-11 China Raises Rates 25 Bips

China raises rates by 25 basis points.  Keystone has been watching for this over the last week.  This move keeps their bi-monthly program in place.  China's raises have now occurred in October, December (Christmas), February (China New Years), and now April.  Thus, the last hike they committed to in 2010 for the period ending June 2011 would be a June hike coming next.

Interestingly, PBOC only raised 25 bips.  The shocker would have been a 50 basis point raise so traders concerned about the affects of the hike today can find solice in that a larger hike did not occur.  S&P dropped about 3 handles in the futures, gold pulled back, thus, the hike should work towards moving commodities lower, equities lower and the dollar index may find support.  Dollar index now sporting a 76+ handle.  Oil and copper lower.

The emerging markets are taking measures to chase Chairman Bernanke's hot easy QE2 money away, they realize the Fed's move is simply creating new asset bubbles.

The China hike was the first hike of concern this week, next is Trichet's big move slated for Thursday.  Does he balk and not raise, or does he go thru with his bluster and raise, just like he did in July 2008 when he unknowingly called the top in the commodities bubble by his erroneous move then?  We will find out within two days.  Euro/dollar was trending lower today by about 0.4% at last look.

Chairman Bernanke spoke last night repeating his no worries about inflation mantra.  Bernanke, Yellen and Dudley are the doves that do not see inflation as a worry moving forward, while Lacker, Bullard and others, the hawkish members, are screaming from the rooftops to get out in front of the inflation. Keystone sides with Ben's side of the argument.  No one expects a deflationary shift now, which is all the more reason for it to arrive, at least to provide a sideways move to rates over the next year or two, not the dramatic continual up move in yields that the majority of traders expect now.  The raging inflation will probably not appear until 2013 or 2014 but, as a skilled trader, you remain open and responsive to any developements and this thinking may change as the summer winds approach.

In the weeks ahead it will become apparent whether the food and energy inflation is due to actual demand from a global recovery, or, the result of Chairman Bernanke's hot easy QE2 money as well as Mother Nature spanking the world with Russia's droughts, Japan's tsunami, Aussie's floods and numerous other events, creating the temporary inflation.  Kesystone is in the latter camp.  A record growing season moving forward can retrace food inflation fears in quick order.

The TXN and NSM deal will impact the semiconductor index today.  Semi's have fallen over 4% in the last four days so look for a bounce here today.  Use the behavior in semi's as a guage for the overall market today.   Copper and commodities will be weak today due to the China hike. SPX in no real danger unless the 1329 level is lost, if you see a 1328 handle, selling should accelerate.