What's going on?
Investors saw Chinese stocks climb more than 1% on Thursday, after the country’s central bank handed out an early new year’s gift.
What does this mean?
Seeing as China’s been in a bit of a growth funk lately, the country’s central bank has decided to reduce the “reserve requirement ratio”. Commercial banks, in other words, aren’t expected to store as much of their money in cash as they did before – which means they can lend it out instead.
It’s set to free up about $115 billion, which Chinese authorities hope will flow to small businesses. That should, in turn, grow the country’s economy and, given China’s size, the global economy too (tweet this). That might be one reason why stocks – which rose in the US, Europe, UK, and China on Thursday – started the new year with such a bang.
Why should I care?
For markets: Look east.
While 2019 saw Chinese stocks deliver their best return in five years, they still underperformed their US peers. But thanks to a variety of market conditions which could work in China’s favor, that could be about to change. For one, the US president recently announced he’ll be signing a trade deal on January 15th, removing much of the uncertainty that’s been hounding China’s economy. For another, new data out on Thursday showed the Chinese manufacturing industry is still on the rise.
The bigger picture: Dollar troubles.
What’s good for the Chinese goose hasn’t been quite so good for the American gander. The US dollar lost 2% of its value in December: its worst month since early 2018. The currency had previously been benefiting from trade war uncertainty, as nervous investors sought safety in US bonds and used dollars to buy them. Investors, then, are expecting the recently agreed trade truce to reduce demand for the currency. That could be good news for exporters, who will see more demand, but bad for importers, whose costs will increase.