China's Fiscal Adjustments Spark Market Optimism☕

On the other hand, data exceptionalism in the US continued, with US PMI survey suggesting “good news to start the fourth quarter, as future output expectations turned up despite rising geopolitical concerns, climbing to the highest level in nearly 18-months". Furthermore, inflation pressures continued to abate with price guages now close to the pre-covid levels, and moving in the direction of the Fed's 2% target. The yield curve continued its relief flattening following the data print, and a non-eventful auction at 1pm made it a quiet day in fixed income for the most part.

In equities, after a weak morning session, China-related indices saw a 3% post-close rally on a surprise visit from President Xi to the PBoC, in addition to announcing a rare mid-year adjustment to the country's budget to account for more deficit spending. The country's legislature approved a plan to raise the fiscal deficit ratio to 3.8% of GDP, well above the 3% set in March and above the generally accepted limit in the past, and to be funded via a new RMB 1trln in CGB issuance. Furthermore, it should be noted that China has rarely changed its budget mid-year, not even during the Lehman crisis, so it's understandable for markets to have such a strong initial reaction to the leadership's apparent pivot towards deficit spending.

#ChinaEquityMarkets #MidYearBudgetAdjustment #ChineseGovernmentBonds #DeficitSpending