China's MIND-BLOWING Stimulus Package Revealed
What this covers
🔥 𝗝𝗢𝗜𝗡 Real Vision for FREE https://rvtv.io/3Y4t5Pw. China's MIND-BLOWING Stimulus Package Revealed. How will it affect your portfolio? Macro Mondays is back!
Andreas Steno Larsen, founder and CEO of Steno Research, is back for another episode of Macro Mondays to analyze what China's new stimulus measures mean for global markets and the economy. Will this, plus expected liquidity additions from the U.S. and China continue to boost risk assets in Q4? Tune in. Recorded on September 30, 2024.
This episode is sponsored by Monetary Metals. Monetary Metals has been paying a physical yield on gold and silver for over 8 years. Earn 2-5% on gold, paid in gold, and up to 12% annually on silver, paid in silver, in their latest offerings. For more information go to https://www.realvision.com/metals.
Timestamps: 00:00 - Sponsor 01:30 - Welcome to Macro Mondays: Key Themes This Week 02:10 - China’s Stimulus Package: Overview & Impact 04:00 - Chinese Fund Flows Surge: A Game Changer? 05:30 - China’s Stimulus Details: Rate Cuts & Fiscal Measures 07:30 - Real Estate Sector & Equity Market Support 09:30 - China’s Export Slowdown: What’s Next? 11:00 - Unsold Homes in China: Special Bond Issuance 12:30 - Real Estate Crisis: Is This Enough to Solve It? 14:00 - Commodities Market Reaction: Iron Ore, Copper, & More 15:30 - Global Liquidity Additions: China & US 17:00 - US Treasury Liquidity Impact on Markets 18:30 - Discount Window: Potential Changes & Impact 20:00 - US Federal Reserve: Liquidity Through Treasuries 22:00 - Fourth Quarter Outlook: Global Liquidity Surge 23:30 - Key Macro Figures This Week: ISM, Jobs, & Inflation 25:00 - Nonfarm Payrolls Forecast: FED’s Likely Response 27:00 - Conclusion: What to Expect in Global Markets
About Real Vision™: We arm you with the knowledge, the tools, and the network to succeed in your financial journey.
Elevate your brand with Real Vision. Connect with us at partnerships@realvision.com to explore advertising possibilities.
🔥 Get 𝗙𝗥𝗘𝗘 𝗔𝗖𝗖𝗘𝗦𝗦 to Real Vision https://rvtv.io/3Y4t5Pw
#realvision #macroinsights #macro #macroeconomics #financialliteracy #financialeducation #financialmarkets #money #inflation #fed #cpi #useconomy #markets #stockmarket #equities #stocks #bonds #gold #btc #bitcoin
Connect with Real Vision™ Online: Twitter: https://rvtv.io/twitter Instagram: https://rvtv.io/instagram Web: 🔥 https://rvtv.io/3Y4t5Pw
Disclaimer: https://media.realvision.com/wp/20231004185303/Disclaimer-1.pdf
Source description (no synthesized summary yet).
Andreas Steno Larsen argues that a massive wave of liquidity is arriving in Q4 2024 from both the US Treasury and Federal Reserve policy changes, combined with Chinese stimulus, creating a strong tailwind for risk assets regardless of underlying economic weakness.
- US Treasury will inject ~$500B+ in liquidity by emptying the general account before debt ceiling deadline in January 2025
- Federal Reserve is implementing discount window reforms to allow banks to post high-quality liquid assets on a running basis, potentially freeing 5-7% of the liquidity pool (~$500B+)
- People's Bank of China announced rate cuts and stimulus measures, adding renewed liquidity into Q4 similar to Fed's actions
This asset isn't compiled yet
You're seeing its claims, ranked. Compile it to build the argument threads, weight them, and check each claim against your library — the full view.
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.
“rate Cuts do not work wonders in an economy where the um where the demand for credit is weak uh so they're obviously trying to also underpin the sentiment around real estate markets and credit markets”
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.
“they made a cut of 20 basis points to this facility late last week interestingly that is the largest sequential move we've seen on that facility post post the pandemic uh they've basically moved in steps of 10 basis points up until last week we're now talking 20 basis points so again I guess this is a signal that they actually mean business this time they are accelerating the easing”
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.
“we have an alleged size of $13 billion doar is that a lot relative to the size of the Chinese market well if you combine the uh market capitalization of the uh Exchange in Hong Kong with the one in zenen and the one in in Shanghai we're talking 11 trillion and this is obviously before the major spike last week and they announced a package of 113 billion so we're talking less than a percentage point of the entire market cap but I guess the signal value is much stronger than um the nominal value of the package here”
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.
“if you look at the volumes uh here here on on Monday uh we're talking about a larger net volume in hangsang Futures than the open interest uh so the amount of of futures um in open interest have changed hands more than once uh during the day”
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.
“they now allow the uh Regional governments to tap this special bond issuance uh with a 100% credit backing from The People's Bank of China to buy unsold homes in their regions um so assuming that they used the Ming uh outstanding of this special issuance uh we're talking about is $300 billion so is that sizable relative to the amount of unsold homes out there well we go from an a$2 trillion doll issue to a a little bit more than1 and a half trillion dollar issue”
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.
“I've been saying it for for a few months that uh without major stimulus China would would most likely enter a recession in the fourth quarter or maybe early next year uh it's a bit more debatable after what they've done last week”
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.
“we've seen a clear shift downwards in the momentum for the export sector in China due to uh a hangover after a front loading of a lot of export activity ahead of the tariffs implementation over the summer uh this is one of the variables that we use to Now cast the Chinese export momentum in U in real time and uh it's a measure of the air pollution over industrial centers in uh in China and we've seen a landslide in that um activity gauge basically since uh the beginning of August”
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.
“most people I I I talked to and I discussed this topic with they see this as the initial step um in a series of a lot of steps going forward so if this pack is not not enough to alter the picture well they'll just increase uh the nominal size of the package uh and as long as we have that sentiment ongoing it's very very hard to lean against it”
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.
“the squeeze that we've seen in Chinese assets is likely a result of uh a few hedge funds blowing off uh blowing up sorry in um in in in in these shorts in Chinese equities and and real estate proxies because it's been a very violent squeeze that we've seen in Chinese assets on the back of the announcement of these packages”
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'.
“it's not like the issue is solved it is structurally still very very bad uh but I I guess the rate of change goes from being very very bad to slightly more benign which in in turn is a change of the sort of probability of events uh going forward in Chinese real estate”