Greg Gibbs, analyst at Amplifying Global FX Capital, points out that China has recently announced a number of fiscal, monetary, and regulatory measures over recent months designed to shore up its equity market and consumer and business confidence.
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“It is also showing an increased desire to reduce trade tensions with the US. This is likely to leave the market in two minds over whether to expect a recovery in Chinese asset markets and related global proxies, like commodities and the AUD.”
“The consensus developing on the street is that the economy may remain soft in Q1 this year, but it may start to show some rebound in Q2 or the second half of the year in response to the government stimulus measures. Optimism may be further boosted if the US and China trade talks show meaningful progress.”
“The market is likely to remain sceptical that China can engineer a sustained economic recovery in 2019 or beyond. The authorities have tried to tweak policy on a number of occasions through 2018 and have not arrested the steady slide. The market is questioning the capacity of the government to act more forcefully and worries that structural economic and financial problems are coming home to roost. These doubts may prevent a significant or sustained rebound in Chinese equities (and proxies like the AUD and copper).”
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