The excitement stemmed from a host of politburo announcements, including remarks that the nation's fiscal stance will be "more proactive" next year, and that the monetary stance will be "moderately loose." This marks a significant change, as it's the first official shift in monetary stance since 2011, suggesting that the Chinese government is recognizing the need for more active economic intervention.
This, and the subsequent 3ish% rally in Chinese stocks, and more than 10% gain in the Nasdaq 'Golden Dragon' index, is as good an example as any of the 'circle of life' when it comes to China stimulus, showcasing how market expectations dramatically shift in response to government policy signals.
I see very little reason for this time around to be different, and maintain my longstanding view of not wanting to touch Chinese markets with a 10ft barge pole. The failure to respect property rights and the existence of a 'politburo' alone justify this cautious stance, especially with ongoing concerns about stimulus effectiveness.
Those shenanigans, though, were good for some upside in the higher-beta sections of the G10 FX market yesterday, with the Aussie and Kiwi vaulting higher by around 1% apiece, and the GBP also finding some buyers, indicating that market reactions are significantly affected by sentiment surrounding China’s economic policy.
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