China signals more stimulus

If there is a Santa rally, I am probably blind.

Shenzhen Stock Exchange
Source: Bloomberg

Or perhaps the market has been too naughty all year round for Santa to give a present. The overnight session failed to provide much clue for Asia today. While European equities ended lower, US shares managed to eke out a gain. Overall, I won’t be too sanguine about today’s trade.

But Asia might be more positive today on hopes that China is going to step up their efforts to support growth. The annual Central Economic Work Conference ended on a strong note, as Xinhua reported that the Chinese leaders are looking to make monetary policy more ‘flexible’ and fiscal policy more ‘forceful’.

The statements indicated that Beijing is concerned about allowing the economy slowing too much. They could suggest that we may only see a moderate GDP deceleration next year.

However, the Chinese authorities remained committed to structural reforms. They are looking to double down on supply-side reforms, particularly in dealing with overcapacity. They have apparently discussed such a policy direction when they met in October to hammer out a new five-year economic plan, according to Bloomberg.

As a whole, risk appetite will not be in abundance today. Japan started on a weak tone, still suffering from low volume where investors remain disappointed with BOJ’s tweaks.

 

Markets

  • Convergence was seen between the WTI and Brent, as WTI narrowed the gap while Brent dropped to an 11-year low. The difference is now around $0.40. However, this could be positioning ahead of the weekly API and EIA energy report, which should show rising crude inventories.

 

  • China stock index futures indicated that onshore indices could go higher after yesterday’s gains. On Monday, market players bought into blue chips, which lifted China A50 and CSI 300 up by +2.9% and +2.6% respectively.

 

  • Bond yields globally were relatively flat, while the dollar index eased slightly on euro demand. This morning, however, EUR/USD is struggling to hold on to the 1.09 handle.

 

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