If the yen has been rising lately, China’s yuan is back on the slide, as expectations mount that China will have to inject more stimulus into the flagging economy.
Whether that is lower interest rates, lower reserve requirements or fiscal support, it will weigh on the currency, at least initially.
Beijing will take steps to boost domestic demand and drive an economic recovery next year, state media said on Tuesday, citing the annual Central Economic Work Conference held from Dec. 11-12.
Top leaders gathered at the forum to set economic targets for 2024. They don’t have their challenges to seek – the huge property sector is in crisis, local government debt is soaring, growth is flagging, and the economy is flirting with deflation.
Hopes for policy stimulus may be weighing on the yuan, but they’re lifting stocks – the blue chip CSI 300 share index rose on Tuesday for a third day, its best run since late October and only the second time in six months it is up three days in a row.
Asian markets may also draw support on Wednesday from Tuesday’s slide in the Wall Street ‘fear index’, the options-based VIX index of implied volatility on the S&P 500. It fell below 12.00 for the first time since January 2020.
It may not be the cleanest gauge of investors’ perception of upcoming risk for U.S. stocks and global stocks more broadly, but as long as it languishes at these levels, broader risk appetite should remain fairly well-supported.
