China finally turns on the taps. Is this it?

<p>China is the big focus today after a not-entirely-surprising RRR cut. It came earlier than expected but the rumblings were certainly there.</p><p>That it came after a leak about offshore fund repatriation to buy Chinese equities can hardly be seen as a coincidence.</p><p>I <a href="https://www.forexlive.com/Education/what-was-harder-buying-china-yesterday-or-buying-it-today-20240123/" target="_blank" rel="follow">wrote about </a>the difficulty in catching the falling China knife yesterday but this meme (from @netcapgirl) captures it perfectly. </p><p>So far, there is a lot of skepticism about China turning it around but skepticism is fuel for bull markets (as NVDA proves this year). Besides beaten-up China equities, there are big implications if China begins to turn.</p><p>Some thoughts:</p><ol><li>China is the major driver of global commodity demand</li><li>Commodities are a major source of uncertainty around inflation, and upside risk</li><li>Stimulus from China could turn around the entire EM space and lead to US dollar outflows, as we're seeing today</li></ol><p>Overall, I don't think you can underestimate how much is at stake. Is this like Mario Draghi saying 'whatever it takes' or the Fed shifting to a dovish stance? It certainly could be but China cuts its RRR twice last year (by 25 bps) without turning anything around. The market psychology in China is very bad right now so I tend to think they need more of a bazooka approach and I'm not seeing that, at least not yet.</p>

This article was written by Adam Button at www.forexlive.com.