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China’s Economic Future: Speculation & Transparency Question

by with No Comment Economic CalendarEquitiesFeatured Highlights

China's Economic Future: Speculation & Transparency Question

China’s economy has been underperforming for a handful of years. Growth has not only stagnated but has experienced a downturn, deflation has been experienced. Strong leadership from Xi Jinping has led to a firm approach regarding the management of China’s political and economic affairs. Until this year, Xi’s grip on power had grown significantly since he took office as the President and General Secretary of the Chinese Communist Party in 2012, but his control appears to be waning. Yet even as lackluster Chinese economic data has persisted, the Shanghai Composite Index (SSE 000001) has mirrored many global equity indices and done remarkably well since April of this year.

The SSE is near 3,826 currently. In early April the SSE was around 3,080, and in the middle of September 2024 the Shanghai Composite Index was close to 2,700, which was clearly within sight of long-term lows. The current heights of the SSE have not been seen since August of 2015. Yes, the Shanghai Composite Index was over 5,000 in April of 2015 and also in 2007. The point being that highs being traversed have not been seen in a long time. But is the positive speculation in the SSE a sign that economic conditions and political considerations in China are positive? Where is the transparency?

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Shanghai Composite Index Five Year Chart as of 24th August 2025

China’s ability to create significant growth over the past four decades has transformed the nation into a global powerhouse economically and militarily. Yet, the past few years have begun to show cracks in the single handed approach to centralized decision making regarding the economy, government data presented has become suspicious. Rampant speculative forces in the SSE have been seen before. Is now the time to buy more Chinese equities or is it time to become cautious? Reliable statistics remain a troublesome aspect for investors.

China’s real estate market collapsed under the weight of too much building and speculative buying of apartments. Yes, inflated property and sudden deflation has been seen in capitalist countries in the past and will be witnessed again in the future. But the bubble in Chinese real estate and its crash also points out problems regarding a lack of transparency. While the Chinese government has tried to fix the fiscal problems caused by the real estate implosion, it has also created significant fractures within its banking system, which are confronting the Chinese government and public, and sometimes feels like a coverup trying to hide bad news. When will there be a recovery in the China real estate sector, is the worst of the crisis fixed?

Chinese political questions and some evidentiary circumstances point to intriguing considerations. There is evidence in China that a change of leadership is progressing. In the past couple of months small hints have been allowed to be published via China’s state media, the Xinhua News Agency. Rule changes have been made regarding decision making processes in the Chinese Communist Party, this was published by Xinhua in late June and republished by the South China Morning Post of Hong Kong in early July. While paraphrasing, both news entities expressed that rule changes meant Xi Jinping would officially have to delegate more decision making.

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USD/CNY One Year Chart as of 24th August 2025

Speculation is growing beyond a mere whisper that the Chinese military has become a wildcard and a source of power that is potentially ready to help remove Xi Jinping. The military apparently is not supporting Xi and wants a more collective approach to decision making via the Chinese government. Yes admittedly, this information can be described as being from news services and podcasts that do not favor the Chinese government, but they seem to be singing in unison. It appears that China’s People’s Liberation Army have decided it is time for a change and is ready to play a role in the selection of new Chinese leadership.

The 80th Anniversary Victory Day Parade in Beijing will be held on the 3rd of September, what role will Xi Jinping play in the show of military force? Will it become apparent that Xi is merely a figurehead until an official decision is made on how the Chinese Communist Party will be led? Importantly, the 15th Five Year Planning Conclave for the Chinese Communist Party will be held in October and this is where a leadership change could take place including the official removal of Xi Jinping.

There appears to be – yes, via the dissident information heard, two factions within the Chinese Communist Party vying for power – hardliners and reformers. The army still hasn’t made it clear if they are backing the hardliners or the reformers. What is evident however via many publications, is that China’s PLA has decided along with other important leadership circles in China’s Communist Party that Xi had too much control and they want a more collective leadership.

Regarding the Chinese economy which has undergone a period of stagnation and lackluster results the past handful of years under Xi’s strong centralized approach, something big is about to happen which will have ramifications for the next five years. Who will lead China? The hardliners who are true believers in ideological communism or reformers who want China to move towards more of a market economy? This is a huge question. This type of political infighting has been seen in China during the past four decades and played a role in key leadership changes. It is not a conspiracy plot which is being sounded, it is the possibility of a transfer of power which happens cyclically in many nations when changes are warranted.

China’s Shanghai Index has done well recently. Perhaps this is a correlation reflecting optimism being sparked globally in equities in recent months. Or is it also possible that some folks in the know are betting on the reformists to take control of the Chinese government? Tariff concerns have seemingly been brushed to the side in China and something bigger is certainly at play. President Donald Trump is not the story here. Investors participating in China need to pay attention to the political changes that seem to be brewing. While speculation has certainly brought the Shanghai Composite Index to long-term highs, transparency from China is a concern economically and politically and there will be an impact if changes to leadership occur.

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Interest Rate Cuts and Cautious USD Centric Gusts in Forex

by with No Comment AssetsBehavioral SentimentFeatured Highlights

Interest Rate Cuts and Cautious USD Centric Gusts in Forex

U.K inflation data this morning came in well below estimates, which almost assures the Bank of England will cut their Official Bank Rate on the 7th of November by at least 0.25 basis points. Tomorrow the European Central Bank will announce its Main Refinancing Rate and it is widely anticipated a 0.25 cut will be made official.

The downturns in the EUR/USD and GBP/USD are easy to see via three month technical charts, but both pairs remain above lows seen over the mid-term. However, the choppy and consistent selling in both currency pairs the past few weeks have likely caused pain for any day trader who has remained stubbornly bullish.

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EUR/USD Three Month Chart as of 16th October 2024

Questions surrounding the Federal Reserve remain murky and this is creating USD strength and cautious selling in other currencies. After a rather dovish sounding round of rhetoric from Jerome Powell and a 0.50% basis point decrease in mid-September, financial institutions clearly have become more guarded about the ability of the Fed to remain aggressively dovish. Will the Fed will cut by another 0.25 on the 7th of November and then say they believe they are done being dovish until additional data backs up their stance? Is there a capability the Fed will still cut the Federal Funds Rate by 0.50 over the next handful of month as once envisioned?

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GBP/USD Three Month Chart as of 16th October 2024

However, there is a chance the Fed will not cut in November and some analysts have banged their drums regarding this idea. But the Producer Price Index results last Friday did show that inflation remains under control. So I hold to the notion the Fed will cut by another 0.25 in November. Let’s see.

On Thursday the 10th of October the U.S Consumer Price Index statistics were slightly hotter than hoped for and this certainly caused some of the USD centric storms now thrashing financial institutions and day traders. It should also be mentioned that on the 4th of October the Non-Farm Employment Change numbers came in better than expected. But revisions lower in the jobs data the past handful of months needs to be remembered, and, yes, there will be another jobs report on the 1st of November. Which will be followed on the 5th by this little thing known as the U.S Presidential Election. So caution will be a solid instrument for day traders and possibly financial institutions over the next three weeks. The stronger move by the USD since the end of September has caught many folks off guard.

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Gold Three Month Chart as of 16 October 2024

Gold is trading near record high levels this morning, but intriguingly WTI Crude Oil has calmed down and is challenging near-term lows. U.S Treasury yields have come down slightly to start this week. The point being that while Forex and gold have seen volatility because of interest rates uncertainty, risk taking actually appears rather solid. Yesterday did see selling in U.S equity indices, but there is no denying U.S stocks remain within sight of ultra-highs. And I might be about to sound contradictory soon, and my own personal bias needs to be carefully given consideration by myself and you the reader. Because while I feel rather comfortable about the higher values in the major U.S indices, I do not feel the same way about Chinese equities currently.

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Shanghai Composite Index (SSE) Three Month Chart as of 16th October 2024

The Shanghai Composite Index has traded a little lower again, but this follows a massive swing upwards after Chinese stimulus intervention. But the U.S equity indices and the Chinese markets are not correlated. Perhaps mentioning the Shanghai Composite Index here is wrong, but the stimulus the Chinese government provided may prove to be window dressing on a storefront that suffers from poor economic infrastructure. Day traders in Asia and elsewhere who are betting on upside in Chinese equities need to be very careful, in fact they should be quite suspicious. Economic data from China to start this week has remained lackluster. On Friday GDP, Industrial Production, Retail Sales and New Home Prices data will come from China.

Major currencies which did very well against the USD since July have struggled the past few weeks as clouds have emerged regarding U.S interest rate outlooks. However, at some point day traders and financial institutions may believe the USD has sold off too much during this wave of caution. The JPY, GBP, and EUR have all lost value during this time. As always day traders need to remember they will find it hard to pick the correct time a strong reversal starts to take place. And it should be remembered because of the risk events lined up Forex volatility may rage a while longer. Certainly the outcome of the U.S election will be a factor in the days ahead and may create sideways trading outcomes in many assets until a winner is known.

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USD/JPY Three Month Chart as of 16th October 2024

But the global markets will remain open and trade. While shouts of danger should be listened to and given heed, tomorrow’s ECB meeting and outcome will be a good start to the parade. If the ECB plays the expected song and cuts the Main Refinancing Rate by 0.25 this will prove interesting, because financial institutions have already priced in the rate cut in most cases and they will wonder if their outlooks regarding the Fed and BoE are correct. The U.S will release data tomorrow with Retail Sales and weekly Unemployment Claims. On Friday housing sector results will come from the U.S also. These reports will provide USD impetus into the markets as the near-term is considered and wagered upon.