The wording is unprecedented! Why did China change its stance for the first time in 14 years, and why did gold, crude oil, and the US dollar rise together?
On Monday (December 9th), global stock markets remained stable as investors digested geopolitical turmoil. Oil and gold prices rose slightly, and the US dollar rose slightly ahead of the release of US inflation data this week, which may consolidate expectations of interest rate cuts in December. Earlier, China's top management adjusted its monetary policy stance for the first time in 14 years, providing a boost to the market.
The European Stoxx 600 benchmark index has reduced its early gains, but is still expected to rise for the eighth consecutive day, the longest rally since May. Industries related to China, such as mining and consumer goods, led the gains, with the basic resources sub index rising by 2.6%.
US stock index futures rose slightly. The US stock index futures rose 0.1%, indicating that the trend of the S&P 500 index and Nasdaq index reaching new highs will continue, and the Russell 2000 index is also expected to reach new highs. US treasury bond bond yields and the US dollar remained stable.
All of this actually comes down to the United States, "said David Morrison, a market strategist at Trade Nation.
It's interesting that the 'Trump market' has been ongoing without any pullback or opportunities for new bulls to enter. You either participate or miss out. That's the overall feeling of the market at the moment, "he added.
In France, President Emmanuel Macron has not yet appointed a new prime minister, following the collapse of Michel Barnier's minority government due to its tight budget. Meanwhile, the Asian market has become tense due to the aftermath of South Korea's brief announcement of martial law last week.
Asian stock indices rose, with Hong Kong's benchmark index jumping 2.8%. The offshore RMB reversed its downward trend and appreciated by 0.1%.
The South Korean market continues to decline as opposition lawmakers say they will push for another round of impeachment votes against President Yoon Suk yeol, who survived the first impeachment. According to Yonhap News Agency, Yoon Seok yeol has been banned from leaving South Korea. The Korean won fell about 1% against the US dollar.
China changes its stance for the first time in 14 years
In China, data shows that consumer inflation slowed last month, indicating that the government's efforts are not yet sufficient to boost demand. The data released by China on Monday showed that consumer prices unexpectedly fell by 0.6% in November, and the annualized inflation rate dropped to only 0.2%, highlighting the need for stronger policy stimulus measures.
The longest downward trend in Chinese corporate bond yields reflects the market's bet on more loose policies. The market's attention is now focused on the Central Economic Work Conference, which will begin on Wednesday, hoping that the conference will convey more signals of financial support.
The market still has high expectations for more policy measures next year, "Joey Chew, head of Asian forex research at HSBC Holdings, told Bloomberg Television." This week's economic work conference may not provide specific numbers, but as long as the wording of the conference indicates that more policies may be introduced, investors will be full of expectations
The top leadership of China announced that it will adopt a "moderate easing" strategy next year, indicating that there may be greater easing in the future, which is welcomed by investors who are eager for more stimulus measures.
According to Xinhua News Agency, the Politburo has also adopted stronger language in fiscal policy, stating that it will be more "proactive" rather than just "proactive".
The wording of the Politburo is unprecedented
Bloomberg reported that this is the first time in 14 years that China's top leader has adjusted its monetary policy stance, and policymakers are preparing for a second trade war that may arise after US President elect Trump returns to the White House next month.
The wording of this Politburo meeting statement is unprecedented, "said Zhaopeng Xing, senior strategist at ANZ Bank." This indicates a strong fiscal expansion, accompanied by significant interest rate cuts and asset purchases. "He also mentioned that this policy tone demonstrates strong confidence in responding to Trump's threat, who had previously promised to impose a 60% tariff on Chinese exports.
The December meeting of the Politburo usually sets the agenda for a larger Central Economic Work Conference, which will set priorities for the coming year, such as annual growth targets. According to Bloomberg's report last week, the conference is scheduled to start on Wednesday.
This policy shift reflects the urgency to further increase easing measures after the expected post pandemic economic prosperity failed to materialize. This impetus has led the People's Bank of China to cut interest rates for many times and reduce the reserve requirement ratio of banks, but the authorities are difficult to stimulate a larger lending scale.
The shift in China's monetary policy has brought a boost to the market at the beginning of this week, which will be closely watched due to political turmoil from the Middle East to South Korea and France, as well as interest rate decisions by major central banks.
Loose monetary policy injects confidence into the market, but its actual impact on the Chinese economy may be limited, "said Joachim Klement, head of strategy, economics, and ESG at Panmure Liberum." What is needed is more fiscal stimulus, accompanied by loose monetary policy
Crude oil prices have risen as the rapid collapse of Syrian President Bashar al Assad's regime over the weekend has made the already complex situation in the Middle East even more difficult. Investors are also preparing for the European Central Bank's interest rate decisions and key inflation data in the United States. Political uncertainty remains prominent, including the possibility of long-term political deadlock in South Korea and the power vacuum left in the Middle East after the fall of Assad.
Pay attention to the US CPI
The next test will be Wednesday's US Consumer Price Report, which will provide Fed policymakers with a final observation of the inflation environment before the final meeting of the year. The core data is expected to remain at 3.3% in November, which should not hinder interest rate cuts.
The non farm payroll report for November showed that 227000 new jobs were added last month, higher than the expected 200000, while the distorted data for October due to the impact of hurricanes was revised upwards.
The market currently expects an 85% probability of a 25 basis point rate cut at the meeting on December 17-18, higher than the 68% before the employment data was released, and expects to further cut rates three times next year.
The central bank has a full schedule
In terms of central bank dynamics, this week the European Central Bank (ECB) will hold its first interest rate meeting in Frankfurt, while governments in Paris and Berlin are paralyzed due to budget negotiations. In addition to the European Central Bank, the Bank of Canada and the Swiss National Bank are also expected to relax policies, while the Reserve Bank of Australia may maintain its benchmark interest rate unchanged due to signs that the Australian economy is starting to slow down.
Barclays economist Christian Keller said, "In the face of high geopolitical uncertainty and inconsistent data signals, monetary policy remains the only means to support economic activity, especially in the absence of strong political leadership in Paris and Berlin
Driven by geopolitical uncertainty, gold rose 0.6% to $2650, but faced resistance at $2666.
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