China’s stock markets have opted to embrace the authorities’ recent ambiguous commitment to support the struggling economy, resulting in a surge in stocks to their highest point in almost a month. A statement from China’s Politburo on Monday indicated a transition from “prudent” to “moderately loose” monetary policy, along with an intention to enhance consumption. Similar to previous announcements in September, there were no concrete details provided, but equity investors were eager not to miss the opportunity, yet the ongoing lack of clarity has seen markets pare initial gains to trade lower on the session.Caution was apparent in China’s foreign exchange market, which remained relatively stable, and in bonds, which saw a rally that drove yields to all-time lows, indicating scepticism about whether growth will genuinely accelerate. Under “prudent” circumstances, a substantial amount of debt has accrued without stimulating domestic demand. The challenge with Chinese monetary policy to date has not been that its strictness has resulted in slow growth and low inflation, but rather that its leniency, which is primarily directed at the supply side of the economy, has contributed to larger imbalances and deflation. Disinflationary forces are prominent throughout the Chinese economy, reflecting an ongoing imbalance between weak domestic demand and expanding capacity as authorities emphasise investment. The November CPI dip to +0.2% year-on-year from +0.3% in October may seem attributable to weaker food prices, which decreased from +2.7% to +1.0% year-on-year. However, stable service prices at 0.4% year-on-year further highlight this weak domestic demand scenario, while goods prices also saw another decline (0.0% compared to 0.2%). Although producer price deflation eased slightly to -2.5% year-on-year from -2.9%, this negative trend has now persisted for 26 months. Economy-wide prices, as indicated by the GDP deflator, have remained negative since the beginning of 2023. The current policy measures appear inadequate to tackle this issue. While hopes for stimulus may be sustaining economic activity, they also contribute to a growing surplus of goods. Without more aggressive fiscal stimulus to address increasing excess capacity, the likelihood of slipping into outright consumer price deflation is rising.European stocks have already been bolstered by China’s policy shift. The data calendar is comparatively empty in anticipation of a busy few days. The European Central Bank and the Swiss National Bank are anticipated to announce their rate decisions on Thursday, followed by a central bank meeting in Canada. The U.S. inflation figures are scheduled to be released on Wednesday. It is anticipated that the European Central Bank will decrease rates by 25 basis points, while the Bank of Canada may reduce them by 50 basis points. Additionally, Switzerland is anticipated to decrease rates by 50 basis points in light of the substantial sums it has allocated to stabilise the Swiss franc.
Overnight Newswire Updates of Note
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut (1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
CFTC Data As Of 6/12/24
Technical & Trade ViewsSP500 Bullish Above Bearish Below 6000
EURUSD Bullish Above Bearish Below 1.0450
GBPUSD Bullish Above Bearish Below 1.26
USDJPY Bullish Above Bearish Below 154
XAUUSD Bullish Above Bearish Below 2600
BTCUSD Bullish Above Bearish Below 92000
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