Asia wrap: Data fuels China optimism

Stephen Innes SPI Asset Management

So far, currency traders are respecting the recent intervention, limiting the USD/JPY pullback to 157, where it's thought large offers are layered above. The Japanese government (GPIF) has bought $1.2 trillion of dollars and euros since 2000 and is currently sitting on one of the biggest trading profits from FX in modern financial history. Hence, traders will be super cautious about taking on this load.

China's factory activity has expanded for a second consecutive month, marking the best streak in over a year and fueling optimism for the sustainability of the world's second-largest economy's recovery.

In addition, investor excitement is palpable with the current shift in policy focus towards real estate. Encouragingly, major cities like Beijing and Shanghai have started easing property market restrictions, signaling broader government efforts to stimulate growth.

The property sector's significance as a wealth generator gives its performance substantial weight, impacting the broader economy and related markets. Its trajectory is likely to influence overall economic sentiment and market dynamics in the near term.

Foreign investors have been cautious about Chinese markets due to geopolitical tensions and US election-related concerns. However, market rallies often trigger a fear of missing out (FOMO), particularly given the attractive valuations of Chinese stocks compared to their US counterparts. This could lead to a global shift of funds into Chinese equities, potentially sustaining the current upward momentum.

The currency, especially the offshore Yuan, plays a crucial role in capital flows, and recent positive economic developments in China's asset and currency markets have been marked by volatility. Nevertheless, there are signs of gradual improvement in both Europe and China, contributing to a more favorable global growth outlook. This shift in economic dynamics might ease some of the strength seen in the US dollar as the narrative surrounding global growth broadens. A stronger Yuan could incentivize more capital inflows.

In summary, the outlook appears significantly brighter now compared to just a few weeks ago, offering hope for a more robust economic recovery.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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