Beijing's Green Light | zerohedge

⬛️ "China stimulus is coming"

🔶 After repeatedly teasing the idea of incoming stimulus several times last year, getting investors' hopes up only to scale it back and disappoint, recent memos from State officials give China's stimulus plans a precise framework they are looking to deliver on. Officials indicated they are waiting to launch the long-awaited "stimulus bazooka" once improving Chinese economic data is met with deteriorating US data.

🔶 This is a historically unusual combination, as global financial flows tend to move in sync (booms and busts are global). Never before has the US entered into a downturn without China. It suggests that Beijing is waiting for signs that the Mainland economy has decoupled before deploying roaring stimulus.

🔶 Finance Minister Lan Fuan points to the fact that Chinese strength relative to US weakness would necessarily attract new foreign direct investment (FDI). Positive real GDP and new FDI coupled with massive consumption stimulus is the path China seeks out of the stubborn economic malaise it has faced since Covid.

🔶 The Chinese State Council released a better-than-expected Q1 GDP report this week, and US GDP looks to decline in Q1. That's the exact divergence Chinese officials have been waiting for to greenlight massive stimulus.

🔶 Chinese stimulus will mean inflation (rising wages, growth and improved employment) and higher bond yields. China's lenders will be in a stronger position and credit spreads will lower. Chinese equities, specifically in sectors whose performance is tied to domestic demand, will also benefit. Demand for industrial commodities - in particular oil, copper and other metals - will increase.

🔶 Western officials continue to talk up looming delisting threats and investment bans, but both look to be far off as reciprocal investment bans from China could collapse the private sector and disturb the Treasury market in ways that would make the recent stress look like a walk in the park.

By DeathTaxesandQE