Weekly Espresso

Chinese stocks saw their sharpest decline in three weeks as investors awaited detailed fiscal stimulus measures following the Central Economic Work Conference (CEWC). The CSI 300 index fell 2.4%, erasing recent gains, while Hong Kong-listed Chinese stocks dropped over 2%. Commodities such as iron ore and copper, reliant on Chinese demand, also slumped, reflecting market scepticism about the government’s economic pledges. The CEWC emphasised boosting consumption and domestic demand, with plans to raise the fiscal deficit and strengthen the social safety net. However, specific policies, including growth targets, remain deferred until March, leaving investors cautious.

China’s top leaders plan to ease monetary policy and expand fiscal spending in 2025 as Beijing braces for heightened economic challenges, including potential trade tensions. The Politburo, led by President Xi Jinping, announced a shift toward a “moderately loose” monetary policy—the first such adjustment since 2011. Fiscal policy will also adopt a more aggressive stance, evolving from “proactive” to “more proactive,” according to state media. At the December meeting, officials pledged to stabilise property and stock markets and deploy “extraordinary counter-cyclical policy adjustments,” signalling a readiness to use unconventional measures to support the economy. These steps highlight China’s determination to bolster confidence amid external risks, including the prospect of U.S. tariffs.

A ceasefire between Israel and Hezbollah has taken effect, ending 13 months of conflict. Brokered by the US and France, the deal aims to cease hostilities in Lebanon and secure Israel from Hezbollah and other militant threats. Under the agreement, Hezbollah has 60 days to withdraw its armed presence from southern Lebanon, while Israeli forces will simultaneously pull back from the area. The ceasefire is intended to be permanent, with both Israel and Lebanon committed to promoting conditions for a comprehensive peace

An estimated 20,000 farmers and their families gathered in Westminster to protest Labour’s proposed “tractor tax” and inheritance tax changes announced in the recent Budget. The rally, which included well-known figures like Jeremy Clarkson, saw farmers from across the UK travel to London, filling Whitehall and Parliament Square. The National Farmers’ Union (NFU) warns that the inheritance tax reforms—limiting 100% relief on agricultural and business property to the first £1 million—could force farms to be broken up or sold. Farmers argue that this policy threatens food production and rural livelihoods. The demonstration highlighted widespread concerns about the potential economic impact on family farms, urging MPs to reconsider the proposed changes.

US Fed Chair Jerome Powell has stated that ongoing economic growth, a strong job market, and inflation above the 2% target mean there is no urgency to lower interest rates. He emphasised that inflation remains on a sustainable path to 2%, allowing a gradual shift toward a neutral monetary policy. However, the timeline for this transition and the neutral rate level remains uncertain, especially given economic strength and the potential impact of new tariffs, tax policies, and immigration changes. Powell noted no immediate signs prompting faster rate cuts, signalling a cautious approach to future adjustments. Treasury yields responded accordingly.

Donald Trump has reclaimed the U.S. presidency, marking a historic return to power eight years after his initial win over Hillary Clinton and four years after Joe Biden’s victory. Sweeping key battleground states, Trump secured what he called an “unprecedented and powerful mandate,” signalling a resurgence of the conservative populism he championed in 2016. With the Senate back in Republican hands, his administration faces a smoother path to confirm appointments and enact policies, from broad protective tariffs on imports to restructuring the federal government by appointing loyalists to key bureaucratic roles.