2025 Outlook Preview: The China Spiral

The world is big and confusing and doesn't work the way they say it does on television because no one takes the time to understand things anymore.

Dear Fellow Expat:

There is a change in our delivery this morning, and welcome to new members who bypassed the galactic gold story to join us for more pointed commentary on what to expect in the year ahead. From a macro-perspective, we assess markets through global liquidity refinancing, quantitative momentum, insider buying, central bank activity, and risk management. Our daily readings are below (Russell 2000 and S&P 500 - and when they turn red, investors are encouraged to hedge or increase their caution over the threat of a broader drawdown in the market.)

Today, I need to start with a headline… Because it defines the lines in the sand for 2025… and where this market is heading. Don’t focus on interest rate cuts this week or questions about the Magnificent Seven stocks until you understand that we’re on the cusp of a broader challenge - and the policy responses will set up 2025.

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China's Economy Is Starting to Look a Lot Like Japan's - That's Not Good News

We start Monday with a focus on China.

Its economy over the last month has shown troubling signs.

It’s starting to mirror Japan's prolonged economic slump of the 1990s.

The numbers paint a clear picture of why economists are worried.

China's government bonds tell us everything we need to know.

This morning, China’s 10-year bond rate has plunged to 1.72% - a more than 30-basis point slump since November 29.

It’s down nearly a full 100 points year-to-date.

That means we’re getting closer to Japan's levels of 1.07%, Yahoo! Finance writes.

For years, China had been viewed as a high-yielding “emerging market” economy with developed investments. Times have changed.

Reuters reports that these historically low rates have triggered alarm bells, prompting China's central bank to check with commercial banks about their bond positions and stability.

U.S. and Chinese yields have reached their widest point in over two decades, with U.S. Treasury yields now paying more than double their Chinese counterparts. This matters because the higher yields in the U.S. draw capital from around the world, prop up the U.S. dollar, and create the conditions we face in 2025.