Markets

Despite China's policy pipe dream, sky-high government leverage and constrained fiscal capacity make it virtually impossible for lawmakers to provide any meaningful policy stimulus that could help extend the growth cycle and revive confidence in the economy and asset markets. 

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While all economies experienced Covid reopening bounce, most EM countries, including China, did not implement the type of cash -handouts that many DM countries did. Still, one of the oddities has to be that no reopening boost has faded as quickly as in China. Hence it illustrates just how important the property market is to China's economy. With no "easy fix" on the horizon, the property market's weakness and its negative impact on the rest of the economy will likely persist.

Ultimately until the property markets come alive in earnest, the constant growth headwinds and dwindling confidence in China's economic recovery could be the ultimate trump card to any "buy the rate cut news" rally. 

 US markets were closed for a holiday, giving traders of many stripes an excuse for a day away from the screens. However, S&P 500 futures opened flat in Asia this morning after yesterday's Asia session sell-off as all markets yawed after a Wall Street China GDP downgrade. 

And while risk remains supported due to the material improvement in the inflation pipeline. However, before making fresh higher ground, investors may need to see some positive convergence in the wide disparity between the Federal Reserve and the Market's forward inflation expectations. In other words, the Markets and Federal Reserve are not singing from the same song page regarding the inflation outlook, in fact the Market is one year ahead of the Fed !!!

The TGA liquidity crisis that was getting promoted by some Wall Street corners has been nonexistent so far. Over the last two weeks, increased treasury bill issuance has been roughly fully absorbed by a rotation of liquidity away from the Fed's repo facility, meaning the net impact of the TGA rebuild has been close to zero.

Forex

Yuan is weaker on the  Wall Street GDP downgrades, but the US dollar will still find support from wider USD-CNY interest rate differentials because China's  latest interest rate cuts. 

In a carry environment, it is hard for the dollar to enter a bear market when it's G-5's high yielder, so traders are likely to play the patience game, waiting for another hint that US inflation and or growth is ebbing. Ideally, currency speculators want to see the Fed pivot dovish over the next few months before backing the truck up on the Euro.

Oil

Oil prices are a bit rangy to start the week and seemingly moved into short-term Tug of War mode as China's economic headwinds clash with increased PBoC policy support.

But before confidently pushing the oil market higher from here, you would ideally like to see a convincing fall in US storage this week.

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