While China's unsold home support program doesn't solve the structural problem of excess housing inventory, it changes the probability distribution of events going forward by improving the rate of change from 'very very bad' to 'slightly more benign'.

Chinese markets experienced a five to six standard deviation move in equities last week following the announcement of the stimulus package, with fund flows through Hong Kong proxies exploding to levels where daily futures volume exceeded total open interest.

The People's Bank of China cut the 7-day standing lending facility rate by 20 basis points, which is the largest sequential move on that facility since the pandemic ended, signaling that Chinese authorities are accelerating easing measures both monetarily and fiscally.

Rate cuts alone do not work wonders in an economy where the demand for credit is weak, which is why China is also pursuing fiscal stimulus and measures to support real estate and equity markets alongside monetary easing.

Chinese export momentum has declined sharply since early August due to a hangover from front-loading of export activity ahead of US and EU tariff implementations, as measured by air pollution levels over industrial centers in China.

Without major stimulus, China would likely enter a recession in the fourth quarter or early 2025, and while the announced stimulus packages improve the probability of avoiding this outcome, they are still likely insufficient to prevent recession entirely given the weakness across all sectors.

China announced an equity rescue package of $113 billion for stock markets, which represents less than 1% of the combined market capitalization of Shanghai, Shenzhen, and Hong Kong exchanges ($11 trillion pre-spike), but the signal value is more important than the nominal size.

Market participants view China's equity rescue package as the initial step in a series of measures, so even if the current package is insufficient, the expectation of future increases makes it very hard to fade the rally even with minuscule nominal values relative to market cap.

China announced a support program allowing regional governments to issue special bonds with 100% credit backing from the People's Bank of China to buy unsold homes, with a maximum outstanding of $300 billion, reducing the unsold housing inventory problem from $2 trillion to approximately $1.5 trillion.

The violent squeeze in Chinese assets following stimulus announcements was likely driven by hedge funds and hot money that had been shorting Chinese equities and real estate proxies, forcing them to cover positions at steep losses.

After the midterms, a windfall tax becomes less likely as the political environment shifts, and if the oil market respects the idea that an SPR seller is being removed or slowed, energy will see political tailwinds rather than headwinds for the long bet.

New job numbers reported today are surprisingly high, providing cover for the Fed to continue hiking interest rates, validating Tony's position that the Fed can move forward without pivoting despite market hopes for cuts.