http://www.cnbc.com/id/15839171

China Pushes Up 1-Year Bill Rate for Second Time in '09

Over the last two weeks China has reined in about $US 60 billion dollars ( 400 B Yuan ) and for the second time markets have reacted negatively .

China sees inflation ahead for the country and although we don't expect much inflation in western countries , if China were to go ahead on the same path imports from China could inflate western economies as th eyear goes by especialy if the Yuan were to rise at some point over the year wich could happen in the second half imo . That in turn could be the signal for a rise in interest rates in western countries , it could also diminish the trade imbalance with China and spur employment growth in those countries later in the second half of 2010-11 .

There were talks of a possible rise of the Yuan in the range of 10% , to what extent would that impact western economies , Central banks behavior and the price of commodities is still unsure but it will remain very confusing and unclear for the rest of the year . Imo markets should remain very volatile and cautious while China seems to set the rules and the agenda for the rest of us .

It appears China has the power to set the timing for the rest of us when it comes to CB quantitative easing and interest rates setting .

As it happened last week the markets recovered after the first shock from China raisng interest rates so suddenly and unexpectedly so far those rises have been small but if the trend should go on it will add up and it might encourage similar moves abroad . China absolutely wants to support the US dollar for obvious reasons and it said so at the very beginning of the year and now it's acting accordingly to support that perception .

Will they be able to inspire sufficient confidence in the US dollar going ahead or will the enormity of the problems with the debt , unemployment and growth in the US be too much for that is a question that remains to be answered . It's a rocky road ahead .

Regards

Tec