1) China Signals Bold Stimulus Measures. Monetary Policy Shift to 'Easing' Expected
China's leadership has hinted at more aggressive stimulus measures. The yuan weakened against the dollar, dropping nearly 0.3%, and the Hang Seng China Enterprises Index surged over 3%. The Politburo Standing Committee, the decision-making body led by President Xi Jinping, pledged to adopt a "moderately easing" monetary policy by 2025, deviating from its 14-year stance of "prudence." This suggests further interest rate cuts are on the horizon. According to Xinhua News Agency, the Politburo Standing Committee committed to a "more proactive" fiscal policy during its monthly meeting, fueling expectations that the government will set a higher budget deficit-to-GDP ratio than the existing 3% in next year's National People's Congress.
2) China Probes Nvidia Over Antitrust Allegations
Chinese authorities have launched an investigation into US semiconductor manufacturer Nvidia for alleged antitrust violations. The State Administration for Market Regulation is examining the circumstances surrounding Nvidia's acquisition of Mellanox Technologies in 2020 and the company's recent activities. Four years ago, China approved the deal on the condition that Nvidia wouldn't discriminate against Chinese companies. As a leading provider of artificial intelligence (AI) chips, Nvidia has already become central to the US-China tech rivalry. The US has imposed restrictions on selling Nvidia's cutting-edge semiconductors to China in an attempt to hinder the development capabilities of Chinese AI services. China has strongly opposed this move.
3) December and January Fed Rate Cut Bets Surge
Bets on the Federal Reserve cutting interest rates in December and January have increased following the release of US employment data. Morgan Stanley economists are forecasting a 25 basis point cut each in December and January. The probability of a December rate cut, as reflected in the overnight indexed swap (OIS) market, rose to 80% from around 64% before Friday's employment report. Market participants are awaiting the November consumer and producer price indices due on Wednesday and Thursday to gauge the Fed's rate-cut trajectory.
4) Pimco Reduces US Treasury Long Bond Holdings. Barclays Predicts Steepening Yield Curve
Global bond manager Pimco has revealed it is reducing its holdings of long-term US Treasuries amid a surge in the US budget deficit. Marc Seidner and others expressed a preference for short- and medium-term bonds, arguing that "over time, this type of investor behavior can demand greater compensation and serve as a watchdog on government fiscal discipline." Barclays predicts a soft landing for the US economy and forecasts yields on 2-year and 10-year US Treasuries to reach 3.75% and 4.25%, respectively, by year-end.
5) Citi Bets on ECB Rate Cut Pace Adjustments
Citigroup advises investors to prepare for potential adjustments in the European Central Bank's (ECB) rate cut pace next year. Jamie Searle believes that market expectations for a rapid ECB easing cycle are excessive. He argues that if US President-elect Donald Trump imposes tariffs on the eurozone after taking office, the resulting economic shock could peak around mid-year 2017, prompting the ECB to respond more aggressively in the second half of the year. Money markets currently anticipate five 25 basis point rate cuts by mid-year 2017 and only one additional cut priced in for the latter half.
(Source: Bloomberg News)
