The optimism within the Chinese market yesterday was baffling

I don’t know what people were thinking with the Chinese market and global growth trades yesterday.

They rallied huge yesterday despite Trump winning the election. The hope — evidently — was that Beijing was going to deliver larger stimulus.

The thing is, the stimulus has been widely known for awhile. As I highlighted Oct 29:

Today in a report from
Reuters, we got a strong sense of what’s coming. The report says that
after a Nov 4-8 series of meetings, that officials will announce a 10
trillion yuan ($1.4 trillion) package.

For some reason, the market decided to massively front-run the announcement yesterday and today we are seeing some major ‘sell the fact’. There was some reasonable speculation they would ramp up stimulus if Trump was elected but all we got was expanded coverage of export credit insurance and a step up in support for trade firms.

Moreover, Trump still won the election and while 60% tariffs are unlikely, something above 0% is a near-certainty and so is all the anti-China noise that’s going to come from the White House for four years.

If there is a silver lining, Finance Minister Lan Foan said more stimulus was coming but — to me — that represents laying another landmine around managing expectations. Unless China really delivers a bazooka for consumers, it’s not going to be enough.

All that said, China stocks are very cheap so it’s not a given they will fall back down to September levels.

What is baffling is the ‘global growth’ trades that rallied on it, including the commodity currencies. Copper posted a huge rally yesterday as well. The global growth picture has not improved this week.