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China's monetary pivot fuels market optimism
Chinese equities surged after a policy pivot to a more dovish monetary stance for 2025, while global central banks brace for a pivotal week in rate decisions.
China shifts to a “moderately loose” monetary policy for 2025, sparking equity gains
RBA keeps rates steady but hints at a potential February cut, weakening the AUD
China’s markets witnessed a dramatic shift in sentiment as the Politburo, the Communist Party’s top decision-making body, announced plans to adopt a “moderately loose” monetary policy in 2025. This marks a departure from the 14-year-long “prudent” stance, signaling potential interest rate and reserve requirement cuts ahead. The announcement triggered a 3% rally in Chinese equities at the open, while the 10-year bond yield tumbled to record lows.
Attention now turns to the Central Economic Work Conference, where officials are expected to align monetary easing with robust fiscal measures to bolster economic recovery. President Xi Jinping reiterated confidence in achieving 2024’s growth targets, with further policy specifics anticipated during the annual conference.
Globally, markets are poised for a decisive week in monetary policy. In the U.S., all eyes are on Wednesday’s consumer price index report—the final inflation reading before the Federal Reserve’s meeting. Any signs of inflation surprise could dampen the likelihood of a third consecutive rate cut.
In Europe, the European Central Bank is forecasted to implement its fourth rate reduction this year amid slowing growth and political instability in major economies like France and Germany. The Swiss National Bank is also expected to trim rates during its policy meeting on Thursday.
In Australia, the Reserve Bank of Australia (RBA) held its cash rate steady at 4.35% during its final 2024 meeting, marking nine consecutive sessions without a change. While the RBA noted progress in curbing inflation, it highlighted that underlying inflation remains above target. The dovish tone drove the Australian dollar lower and fueled market bets on a potential rate cut as early as February.
Meanwhile, political uncertainty in France intensifies as President Emmanuel Macron meets with party leaders to find a replacement for ousted Prime Minister Michel Barnier. The far-right National Rally party, led by Marine Le Pen, criticized its exclusion from consultations.
Key events this week:
- U.S. CPI and Canada rate decision (Wednesday)
- ECB rate decision and U.S. PPI data (Thursday)
- Eurozone industrial production (Friday)
