A Stable Economy Is Crucial

Keeping China’s economy stable before a twice-decade meeting of the ruling Communist Party is “crucial, a top policymaker says. This statement indicates the event’s colossal importance in the country this year.

All regions and departments must take responsibility for economic stabilization.

Officials should implement policies to support that goal while being cautious of those that would cause contraction, he wrote. Han also advocated for increased fiscal spending with appropriately front-loaded infrastructure projects.

Investors have been selling China’s benchmark government bonds since Han’s article was published. They assumed that the spending will boost the economy and thus inflation. The yield on 10-year notes has risen three basis points in the last two sessions to 2.82 percent. This was its highest level in more than a week.

Dollar

On Thursday, the U.S. dollar took a breather on its way to a 14-month high, riding the tailwind of minutes from the Federal Reserve’s December policy meeting, which boosted expectations of a rate hike as early as March.

According to the meeting minutes, officials discussed shrinking the Fed’s overall asset holdings and raising interest rates sooner than expected to combat inflation.

Money markets are now pricing in nearly an 80 percent chance of a U.S. interest rate rise by March. Moreover, they expect more than 80 basis points of cumulative rate increases in 2022. There was a significant shift in expectations from just three months ago when investors did not expect the first U.S. rate hike until the summer of 2023.