Positioning for pivot made in China

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A preview of the day ahead in Asian markets from Jamie McGeever. What the Fed takes, China may be about to give back.

Speculation is mounting that China may soon make substantial changes to its zero COVID policy and begin to reopen the economy. Chinese asset prices were on fire at the end of last week, and the glow should continue to shine through Monday.

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Wall Street’s strong close on Friday should also help, but this rally may be vulnerable – the Fed isn’t pivoting anytime soon, implied terminal rates are now above 5%, the yield curve inversion is relentless and a slowdown in earnings next year is highly likely.

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Could a Chinese pivot on COVID replace the Fed’s elusive pivot on rates for investors and trigger a year-end rally in global markets? Some of the moves in China and Hong Kong over the past week have been remarkable.

Shanghai shares rose 6.4%, the biggest weekly gain since July 2020; Hong Kong’s Hang Seng jumped 8.7%, its best week in 11 years, and the Chinese yuan posted its biggest rise against the dollar on Friday since the currency’s one-time revaluation in 2005.

A Hong Kong summit last week in the global banking sector showed pent-up appetite to invest in China. « The risk/reward ratio is still attractive for reopening long trades in China, » Morgan Stanley analysts said.

China is also drawing attention to economic data on Monday, as Beijing releases its trade and foreign exchange reserve figures for October. Commercial activity should slow down and foreign exchange reserves, already at their lowest level for five and a half years, should approach the 3,000 billion dollar mark.

Three key developments that could give markets more direction on Monday:

China’s trade balance, foreign exchange reserves (October)

India’s trade balance (October)

Germany current account (September)

(Reporting by Jamie McGeever in Orlando, Florida; Editing by Lisa Shumaker)


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