Asia open: US markets roar, but China’s caution dims the shine on US exceptionalism

US markets are coming off a banner week, fueled by post-election optimism and a Fed rate cut that has supercharged risk appetite, sending the dollar to new highs. Investors are basking in the glow of what feels like a golden moment for U.S. exceptionalism. However, just as the U.S. bull run gains momentum, the global stage is serving up a mixed bag of signals.

On the one hand, investors are still grappling with the fallout from the UK’s budget. At the same time, the political collapse in Germany has added an extra layer of uncertainty to Europe’s already shaky situation. Yet, the most intriguing story could be unfolding across the Pacific in China—a market that remains far from bullish despite some major policy moves.

China recently revealed its much-anticipated 10-trillion-yuan stimulus plan, which had set the stage for expectations of a significant economic jolt. But instead of delivering fireworks, the plan ended up being more of a fizzle. While the number is massive—around 8% of GDP—the focus is primarily on debt relief for local governments, stabilizing infrastructure projects, and shoring up local government financing vehicles. It’s not exactly the growth rocket many had hoped for. While it’s a substantial number, the stimulus is less about jump-starting economic growth and more about plugging holes in a struggling local government system.

As a result, investor excitement has been tempered. Still, some in the market are hoping that Beijing has more in the pipeline—possibly in the form of infrastructure spending or housing support—that could eventually provide the much-needed spark for a broader economic revival.

Compounding the cautious sentiment, official inflation data from China, released on Saturday, pointed to continued weakness. Producer prices in October slumped 2.9% year-over-year, a deeper decline than the 2.8% fall in September, marking the biggest drop in 11 months. Consumer price inflation also slowed to 0.3%, the slowest pace in four months, suggesting that China’s path to economic reflation will likely be at a snail’s pace.

Meanwhile, the spectre of higher U.S. tariffs on China and other parts of Asia is casting a long shadow over global growth expectations. The market is increasingly pricing in the reality that these tariffs could hit Asian economies harder, resulting in weaker growth and a stronger dollar against Asian currencies. Foreign Exchange Traders are positioning USD/CNY to peak at 7.40-7.50 once the Trump tariffs go live, believing that China’s stimulus measures will struggle to counterbalance the risks posed by potential tariff escalation.

In summary, while U.S. markets are riding high on post-election euphoria and the Fed’s dovish tilt, the picture in China is more complicated. A stimulus that underwhelms and persistent deflationalry funk suggests that China’s economic recovery will be much slower than anticipated. The growing threat of tariff hikes adds yet another layer of uncertainty to the global outlook. As a result, the market will need to keep a close eye on the U.S. and China’s economic moves in the coming months as a stronger dollar and shifting global dynamics continue to shape the investment landscape.