China's Much-Anticipated Briefing Disappoints
Chinese markets' volatility following a world-beating rally is likely to persist, as Beijing's much-anticipated Finance Ministry briefing on Saturday fell short of the explosiveness that equities investors had hoped for.
The briefing failed to provide the headline dollar amount for the extra fiscal stimulus that the markets had hoped for, despite Finance Minister Lan Fo'an's promises of further assistance for the suffering property industry and hints at increased government borrowing to strengthen the economy.
In addition to the economy's long-standing weakness, merchants may be dissatisfied due to the absence of fresh incentives to increase demand after data showed deflation taking hold in China.
After the Chinese government's stimulus blitz in late September, investors have been waiting for Beijing to unveil massive budgetary measures to help maintain the surge.
On Friday, the CSI 300 Index, which measures onshore stocks, finished its worst weekly loss since the end of July, as market volatility increased in the hours leading up to the MOF briefing.
If the surge continues to unravel, more selling pressure may be on the horizon, adding to fears that stocks are headed for another false bull market start.
In the past, when Beijing's stimulus measures were implemented piecemeal, the market saw cyclical ups and downs with only temporary recoveries.
Commodity prices fell after China's decision not to disclose new fiscal stimulus measures to support the economy.
China has intensified its support for the economy, pledging further assistance for the declining property industry and financially burdened local governments. However, policymakers have yet to persuade economists that they are taking sufficient measures to combat deflation.
A lacklustre increase in consumer prices and a continuation of falling factory-gate charges for 24 consecutive months are indicators of slow demand. At the hour-long session on Saturday, officials hardly touched on deflation.
Many predicted that China will use up to 2 trillion yuan ($283 billion) in new fiscal stimulus measures, like as subsidies, consumption vouchers, and family financial assistance, in the days leading up to the weekend.
The Chinese legislature, the Standing Committee of the National People's Congress, announced a revised budget and more bonds at a meeting in late October of last year.
So, fiscal stimulus may come later than currently expected.
However, according to Lan's comments on Saturday, China is fine with the economy's general trajectory.
Neither of his pledges—to eliminate the largest attempt in recent years to alleviate the financial burden of local authorities nor to authorise the use of special bonds by local governments to purchase unsold homes—is likely to offer a short-term boost to GDP.
Regarding direct subsidies, Lan said that China will increase student financial assistance and scholarship funding by 100%.
"We didn’t get much over the weekend, but our expectations were not for much anyway, I still think more fiscal stimulus is coming, this year and in coming years," Mohit Kumar, chief financial economist for Europe at Jefferies, told Reuters.
This comes after the young unemployment rate hit a record high in August. He also promised to keep helping out those in need, using last month's one-time distribution to the impoverished as an example.
For a long time, economists have advocated reorienting fiscal policy towards domestic consumption.
If the country adopted a more sustainable and balanced growth strategy, its economy would be less dependent on exports, which would be especially helpful given the increasing trade tensions.
Investing in public projects, such as roads and bridges, through debt has become less effective due to the oversaturation of the country's infrastructure caused by decades of urbanisation.
Authorities have more funds available than projects worthy of spending them on due to an absence of high-quality initiatives.
However, the cryptocurrency market experienced a significant surge today, driven by China's announcement of an $800 billion bond issuance aimed at stimulating economic growth and stabilizing its property market.
In the wake of the dual positive news, Bitcoin and Ethereum saw remarkable ETF inflows, totaling $800 million over just two days. Bitcoin rose by 6.5% to sit at $65,658 at press time, after crossing the $66K mark in the early hours on Tuesday, while Ethereum outpaced its competitor with an impressive gain of 8.1% to sit at $2,617 currently, according to Coinmarketcap data.
Elsewhere
Blockcast
On this week’s Blockcast, we speak with Luca Prosperi, co-founder and CEO at M^0 Labs, whose man-bun and genial personality belies battle scars from almost 2 decades of traditional banking, helping to build MakerDAO and, a health scare. Luca dissects the concept of money creation and some of the foundations behind M^0’s quest to build infrastructure for a crypto dollar.
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