The Chinese Ministry of Finance’s announcement today of 10 trillion yuan of new measures to alleviate local government debt issues (see earlier post) is a “decisive move to address local government debt woes”, says Lynn Song, chief economist for Greater China at ING.

Song says the plan will free up local governments to drive “forceful” fiscal policy for Beijing:

Other than the obvious impact of addressing short-term debt risks, arguably the most important aspect is that it will free up local governments to once again implement stimulus measures where appropriate and necessary. These measures will likely take time to roll out, but today’s moves at least set the foundation for further fiscal stimulus rollout. Indeed, the press conference also signalled that China would be implementing a more “forceful fiscal policy” next year.

Though it was not explicitly addressed, it is likely that local governments and SOEs will play a large role in the moves to stabilise the property market in the future.

We anticipate there will be direct acquisitions of unsold homes to coordinate with the earlier PBOC [central bank] policies to expand the re-lending programme to banks.

Mining companies listed in London, who are sensitive to China’s growth prospects, are among the fallers on the stock market this morning.

Copper producer Antofagasta are down almost 5%, followed by Rio Tinto (-3.9%) and Anglo American (-3.6%).

AJ Bell investment director Russ Mould says:

“After a hectic week investors had more to digest in the form of further Chinese stimulus but what has been announced so far doesn’t seem to be moving the needle and the risks to China from a second Trump presidency are now overshadowing efforts to get the economy moving. The question on investors’ lips will be whether this encourages Beijing to unveil a bolder package of measures.

“Asian stocks sputtered overnight and the UK-listed miners who are reliant on China for much of their demand were also on the back foot.

Yesterday’s cut to UK interest rates doesn’t seem to have yet filtered through to borrowers.

Data provider Moneyfacts reports that the average rate on two-year loans is unchanged this morning, while the five-year equivalent is slightly higher:

• The average 2-year fixed residential mortgage rate today is 5.42%. This is unchanged from the previous working day.

• The average 5-year fixed residential mortgage rate today is 5.14%. This is up from 5.13% the previous working day.

China’s currency, the renmimbi, weakened after Beijing announced its new 10 trillion yuan package to refinance local government debt.

The renmimbi is down 0.3% at 7.168 to the US dollar.

That may suggest that this morning’s announcement is seen as underwhelming; tho there’s no suggestion that this is the end of Beijing’s efforts….

On Wednesday, after the US election, the renmimbi tumbled from 7.09 to 7.21, before recovering a little.

At the other end of the FTSE 100, housebuilder Vistry have tumbled 15% after its build cost crisis deepened.

Vistry told shareholders this morning that the review into cost errors at its South Division shows the problem is worse than expected.

Vistry has added £50m to its total estimate of the impact to its profits over the next three years, taking the total to £165m.

Its review into the problems shows that “insufficient management capability, non-compliant commercial forecasting processes and poor divisional culture” led to the company’s staff messing up costings.

In the City, shares in British Airways’ parent company have jumped over 7% after it reported strong results this morning.

IAG are leading the FTSE 100 risers after posting a 7.9% increase in revenue in the third quarter of the year, with operating profits up 15.4% to just over €2bn.

Luis Gallego, IAG Chief Executive Officer, says:

“We achieved a very strong financial performance in Q3 2024, with a 15.4% increase in operating profit compared to the same period last year and improving our margin to 21.6%. This is due to the effectiveness of our strategy and Group-wide transformation.

“We are also delivering on our commitment to provide sustainable returns for shareholders. “Demand remains strong across our airlines and we expect a good final quarter of 2024 financially.”

Investors have also been digesting the consequences of a second Trump term.

The discussion around what trades work best with a Trump administration centers on three points, Bob Savage, head of markets strategy and insights at BNY, told clients:

1. Tax cuts = higher deficits. Trump policy shifts from the current government will revolve around taxes – expected to be lower thereby increasing the government deficits and borrowing needs.

2. Tariffs = inflation. Investors also fear the role of tariffs as they are expected to disrupt global trade and supply chains as they did in 2016-2020 with risk of inflation and less investment.

3. Deregulation = more lending. The markets also see Trump pushing for less regulation by government – leading to easier lending as capital requirements drop, along with more pressure on the FOMC to ease.

Governor of the Bank of England Andrew Bailey is concerned that new tariffs could cause a ‘fracturing of the world economy’.

Speaking to LBC’s Tonight with Andrew Marr yesterday, after cutting UK interest rates, Bailey explained that growth would suffer:

‘What I would call fragmentation of the world economy, the world economy sort of breaking up is not a good thing, it’s a bad thing… Tariffs is one of the things that can cause that sort of fracturing of the world economy…

Open trade really stimulates growth. Adam Smith taught us this, open trade is good for growth. Now, there are risks attached to it, and we have seen those risks, so there are obviously risks. We saw it with the impact of the Ukraine War, that if you’re overly dependent on one part of the world for something, obviously, if it gets disrupted, that can have a bad effect.

So, diversification, spreading your sources of things, and trade is sensible and good. But if the world becomes more closed the cost of trade goes up – protectionism, that’s not a good thing.’

Wang Dong, a professor of international relations at Peking University, has warned that “Trump 2.0 is likely to be more destructive than the 2017 version.”

In a pre-election interview with Chinese media, Wang said:

“Compared with his first term in office in 2017, Trump’s views in his second campaign in 2024 have not changed much, but the domestic situation and international environment have changed dramatically … during the Trump 2.0 period, China and the United States are likely to have constant friction and conflict”.

Here’s our new analysis of how China is preparing for the return of Donald Trump: