Milei's Free Trade Push, Haddad's Fiscal Initiatives and China's Industrial Profit

Hi there,

Today's edition provides a detailed look at the recent trends influencing global markets and economies. Argentina is aligning with President Javier Milei's pro-trade stance by relaxing import barriers. Meanwhile, Brazilian traders anticipate fresh fiscal measures as the government targets a zero primary deficit by 2024. Additionally, China witnessed a robust 29.5% rise in industrial profits in November, benefiting from favorable year-on-year comparisons and ongoing economic stimulus.

– Matheus Zani & Daniel Porto

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2. Haddad's Fiscal Initiatives Boost Brazilian Stocks and the BRL

Brazilian traders are on the lookout for new fiscal initiatives this week as the government strives for a zero primary deficit by 2024. Recent congressional approvals bolstering Haddad’s revenue-raising endeavors propelled Brazilian stocks to peak above 132,000 points last week. Meanwhile, the BRL has strengthened by over 1% in recent sessions, nearing the upper limit of its 4.84-5.00/USD range that dominated the latter half of the year.

The upcoming CPI data on December 28 is expected to influence swap rates, buoyed by rising confidence in interest rates that recently propelled the Ibovespa stock index to record levels.

Anticipations of potential 2024 rate cuts by the US Federal Reserve have further boosted Brazilian asset values, setting the stage for domestic rate reductions.

3. China's Industrial Profit Surge Amidst Economic Challenges and Mixed Signals

In November, China's industrial profits surged by 29.5% compared to the previous year, buoyed by favorable year-ago comparisons and economic stimulus efforts. This growth, according to the National Bureau of Statistics, is further attributed to significant investment returns. While the government halted data releases in 2022 due to pandemic restrictions, they resumed this year. Yet, profits for major industrial firms from January-November declined by 4.4% year-on-year, an improvement from the 7.8% drop in the first ten months. NBS analyst Yu Weining highlighted the improving industrial production and profit due to macro policies and domestic demand recovery.

Bruce Pang of Jones Lang LaSalle Inc. noted that November's profit growth was influenced by stock and yuan gains, combined with the base effect. However, market response was muted, with the CSI 300 Index initially dropping 0.5% post-data release. Other indicators present a mixed economic picture: while industrial output surpassed expectations, consumer prices plunged, and factory-gate costs accelerated. Such deflationary trends challenge the sustainability of profit growth. Beijing aims for a 2024 growth target of 5%, against a higher base, amid weakened external demand and lingering overcapacity issues in sectors like consumer goods.

Charted Territory

What to look out for today

CHF - ZEW Survey Economic Expectations
JPY - Retail Trade
JPY - Large Retail Sales
USD - Richmond Fed Manufacturing Index

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