The news over the weekend was overwhelming, indicating that next week will be extraordinary.
1. First, there was good news that China and the U.S. have renewed their government science and technology cooperation agreement (this agreement has provided a framework for cooperation in fields such as science and technology, healthcare, environment, and climate since it first came into effect in 1979).
What seems to be an ordinary piece of news actually carries significant meaning—indicating that there is still some consensus between both parties in areas of cooperation, which may lay the foundation for dialogue and cooperation in other areas in the future. However, subsequent developments may remain at a symbolic level, especially after Trump took office.
2. Then there was news of U.S. Treasury Secretary Yellen accepting an exclusive interview with Reuters, mentioning China three times.
· The first time was when discussing further sanctions on Russia (lowering the price cap on Russian oil), mentioning that the possibility of sanctioning Chinese-funded banks cannot be ruled out.
· The second time was in response to the news that 'China is considering devaluing the renminbi.' Yellen's response was that China's actions in recent years have been quite the opposite, consistently pushing up the renminbi exchange rate.
· The third time, warning Trump that maintaining open communication channels with China is very important.
Note: The last meeting of the China-U.S. financial working group will be held next week, focusing on financial stability issues, including tabletop simulations on how to respond to potential financial crises.
3. The Chinese Ministry of Finance, the central bank, and the Securities Regulatory Commission have successively expressed their positions, seemingly hoping to guide market expectations. Content-wise, a reserve requirement ratio cut is something we might see soon, while other measures remain on paper. China's expectation management has recently overly focused on refining wording, and investors are somewhat fatigued.
· Ministry of Finance: Next year, we will implement a more proactive fiscal policy to ensure that fiscal policy continues to exert force and is more effective (note the wording 'more effective').
· Securities Regulatory Commission: We must firmly implement important requirements to stabilize the real estate and stock markets and effectively maintain the stability of the capital market (consistent with the central economic work conference, with the real estate market prioritized over the stock market).
· Wang Xin, director of the research bureau of the People's Bank of China, stated that we need to moderately increase the support of monetary policy, timely reduce the reserve requirement ratio and interest rates, and increase the intensity of monetary credit (note the wording 'moderately, timely').
It should also be noted that due to market expectations that the Federal Reserve may signal 'a pause in interest rate cuts' next week, cautious sentiment may spread through the market as early as Monday. Will A-shares, U.S. stocks, and gold experience a simultaneous decline? Is the decline a buying opportunity or the beginning of a larger drop? There are more profound answers to this.
