Positioning for pivot made in China

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.

What the Fed taketh away, China could be about to giveth back.

Speculation is mounting that China may make substantial changes to its zero-COVID policy soon and begin opening the economy back up. Chinese asset prices were on fire at the end of last week, and the glow is expected to continue burning brightly into Monday.

The strong close on Wall Street Friday should also help, but that rally may be vulnerable – the Fed is not pivoting any time soon, implied terminal rates are now above 5%, the yield curve inversion is relentless, and an earnings slowdown next year is highly likely.

Could a Chinese pivot on COVID replace the elusive Fed pivot on rates for investors, and spark a year-end rebound across world markets? Some of the moves in China and Hong Kong last week were remarkable.

Shanghai stocks rose 6.4%, the biggest rise weekly since July 2020; Hong Kong’s jumped 8.7%, its best week in 11 years, and the posted its biggest rise against the dollar on Friday since the currency’s one-off revaluation in 2005.

(GRAPHIC-China stocks:

A Hong Kong summit last week in global banking showed the pent up appetite for investing in China. “Risk/reward is still attractive for being long reopening trades in China,” Morgan Stanley (NYSE:) analysts reckon.

China also grabs the economic data spotlight on Monday, as Beijing releases its trade and FX reserves figures for October. Trade activity is expected to slow and FX reserves, already the lowest in five and a half years, are expected to dip closer towards the $3 trillion mark.

Three key developments that could provide more direction to markets on Monday:

China trade balance, FX reserves (October)

India trade balance (October)

Germany current account (September)

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