Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
China’s markets fell on Monday after a fiscal stimulus package announced by authorities last week to help shore up its economy underwhelmed investors.
Hong Kong’s Hang Seng index declined 2.1 per cent, while mainland China’s CSI 300 edged lower. Brent crude, the international oil benchmark affected by the outlook for China demand, was trading 0.4 per cent lower at $73.50 a barrel.
Chinese equities had climbed over the past week with expectations of more details on Beijing’s stimulus plan following a monetary policy blitz at the end of September. But investors were disappointed by the lack of measures targeting consumption, said analysts.
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“Investors are unwinding bullish bets as they feel the major event is over and they are a bit let down,” said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas. Lui noted that mainland markets were benefiting from increased retail participation and the central bank’s new lending facilities.
Traders in options markets sold down their Chinese equity positions in Hong Kong, implying they did not believe the fiscal stimulus would lead to any major market moves. Six-month at-the-money options for the Hang Seng China Enterprises index were down 8.5 per cent.
China’s rubber-stamp parliament, the National People’s Congress, on Friday announced a $1.4tn package to restructure local government debt. The long-awaited fiscal plan included authorising local governments to issue bonds to restructure much of a “hidden” debt pile worth about Rmb14tn ($2tn).
Finance minister Lan Fo’an said the government was “studying” additional measures to recapitalise big banks and strengthen consumption but did not provide more details.
The country’s central bank on Monday fixed trading on the renminbi at its lowest level in a year, at Rmb7.18 a dollar, 0.5 per cent lower than Friday’s fix. The dollar strengthened by 0.1 per cent to $105.1 against of a basket of six currencies.
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The weaker exchange rate suggests downward pressure on the renminbi from investment outflows and traders positioning for president-elect Donald Trump’s incoming administration and potential trade tensions with China.
“With perceived emphasis on stabilisation rather than stimulus, and no measures to facilitate bank recapitalisation and/or boost consumption, we think this will come as a disappointment for stock investors,” wrote analysts at Nomura.
Investor focus has shifted to the Central Economic Work Conference, an agenda-setting economic meeting held by authorities in early December in Beijing, for more stimulus details.
“Constant delays and underwhelming stimulus might remind some investors of Green Day’s ‘Boulevard of Broken Dreams’ — a song that echoes the feeling of repeated disappointments,” added Nomura.
Events to look out for on Tuesday include speeches from the Federal Reserve governor, Home Depot earnings and Spotify results:
Fedspeak: Less than a week on from the central bank’s second rate cut of the year, Federal Reserve governor Chris Waller will deliver the keynote at the Clearing House Annual Conference in New York. Separately, Federal Reserve Bank of Richmond president Tom Barkin is scheduled to speak at a summit in Baltimore. At Carnegie Mellon University, Philadelphia Fed president Patrick Harker will deliver a lecture on “Fintech, AI & the Changing Financial Landscape”.
Home Depot: Investors will be eager to find out whether the Federal Reserve’s back-to-back rate cuts, which will have an effect on mortgage rates, have made a difference to consumer appetite for home improvement projects. Home Depot, which last quarter cut its sales outlook on weakened consumer spending, is projected to report a 4.3 per cent increase in third-quarter revenues, to $39.3bn.
Other earnings: Tyson Foods will announce fourth-quarter earnings before the opening bell. Flutter and Spotify will post quarterly results after market close.
President-elect Donald Trump’s newly picked “border czar” Tom Homan addressed his forthcoming deportation plan and state leaders who have objected to sweeping immigration policies.
During an appearance on Fox News on Monday, Homan issued a warning to so-called “sanctuary” states and cities to “get the hell out of the way” of the Trump administration’s mass deportation plans.
“I saw today numerous governors from sanctuary states saying they’re going to step in the way. They better get the hell out of the way. Either you help us or get the hell out of the way, because ICE is going to do their job,” he warned, referring to the U.S. Immigration and Customs Enforcement, where he formerly served as director.
“I’ll double the workforce in that sanctuary city. We’re going to do our job despite the politics. We’re doing it. So get used to it, because we’re coming,” Homan said.
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When asked if he plans to deport American citizens, Homan said, “President Trump has made it clear we will prioritize public safety threats and national security threats first, and that’s how the focus would be.”
Olaf Scholz has just pulled the plug on his coalition and lost his parliamentary majority, with polls suggesting his party will be defeated in Germany’s upcoming snap election. Yet he still looks likely to be crowned as his party’s candidate for chancellor.
The government crisis that culminated last week with Scholz calling time on the three-party alliance plunged Germany into a new phase of turbulence. But Social Democrat leaders have rallied round him, steadying his status in a party that long nurtured doubts about their chancellor.
Some Social Democrats would still prefer to see him replaced on the ballot by Boris Pistorius, the popular defence minister. But they are the minority. Most expect an SPD congress to be held in the coming weeks to anoint Scholz as the party’s Kanzlerkandidat — regardless of his approval ratings.
The support for Scholz was on full display at an emotional meeting of the SPD parliamentary group last week when he was given a standing ovation by MPs.
Jens Spahn, an MP for the opposition Christian Democrats (CDU) and a former health minister, described the scene as “surreal”.
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“Here is Olaf Scholz, a failed chancellor, his coalition has just broken down, he’s sacked his finance minister and his SPD thinks it’s a cause for celebration?” Spahn told the Financial Times.
The incredulity in opposition ranks increased after a television interview with Scholz on Sunday evening in which he refused to admit mistakes and, in the view of some commentators, came across as cold and unsympathetic.
Some have openly questioned why the party still backs Scholz. TV presenter Micky Beisenherz compared him to Bruce Willis in the film The Sixth Sense. He “goes to work every day even though he’s long dead,” he wrote on X. “He just doesn’t know it yet.”
Just months ago, Scholz’s position was precarious. Some in the SPD blamed him for the party’s slump in support, with polls putting it at between 14 and 16 per cent over the past year, way behind the CDU on 30 to 32 per cent.
But Scholz’s standing among some of his party colleagues has paradoxically improved since the government’s collapse. They have hailed him as a hero who finally lanced the boil, ending a dysfunctional government riven by ideological conflict.
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For them, the sacking of finance minister Christian Lindner, leader of the pro-business Free Democrats (FDP), was the inevitable climax of months of provocation.
“There is relief that we will no longer be subjected to endless humiliation by Lindner and the FDP,” said one SPD MP.
Scholz said he fired Lindner because he refused to suspend the “debt brake” — Germany’s constitutional cap on new borrowing — to allow for more funding for Ukraine. The issue has taken on greater urgency since US voters re-elected Donald Trump, who has questioned western aid to Kyiv.
The dismissal played well in the SPD’s grassroots. “It was a kind of liberation — long overdue,” said Dirk Smaczny, head of the party’s local branch in Rheinhausen-Mitte, near the Ruhr industrial city of Duisburg. “We’ve been waiting a long time for Scholz to show strong leadership, and he finally delivered it.”
“He could have said ‘let’s just muddle through another year’,” said Johannes Fechner, a senior SPD MP. “The fact he accepted that the country needed a new government, even though it might mean he’ll lose his job — the SPD rank-and-file really respect him for that.”
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Yet Scholz remains controversial in the party. Closely associated with the labour market reforms of chancellor Gerhard Schröder in the early 2000s that alienated working-class voters, he lost his bid for the party leadership in 2019 in a humiliating defeat.
He staged a remarkable comeback two years later, running for chancellor in 2021 and winning the election. He then brought together the SPD, FDP and Greens in a coalition that was unique in Germany’s history.
But his record has been clouded by countless internal rows over economic policy that he tried — and ultimately failed — to mediate. Scholz has seen the worst approval ratings of any postwar chancellor.
On Monday two SPD politicians from the chancellor’s home town of Hamburg, Markus Schreiber and Tim Stoberock, said he should make way for the defence minister.
“Our chances of winning the election or at least performing a lot better are much greater with [Pistorius], who has long been Germany’s most popular politician,” they wrote on Instagram.
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Scholz spent too much time cobbling together compromises “in technocratic language” which were then rejected by his coalition partners. “We believe the negative image the people in this country have of him can no longer be repaired,” they wrote.
Privately, some SPD lawmakers agreed that Pistorius might be a better bet. “But politics doesn’t work like that,” said one. “Scholz’s huge strategic advantage is that he holds the reins of power. He’s the one who took this step. He’s the one who announced early elections. That gives him a certain strength.”
Scholz has shown no inclination to stand aside — nor does he intend to put his candidacy to a party vote.
His spokesperson Steffen Hebestreit on Monday defended the absence of a formal selection process, saying there was no need — and also no time.
“First of all, he’s the natural candidate because he’s chancellor,” he told reporters. “Secondly, look at the clock . . . We’re going to have snap elections quite soon, if he loses the confidence vote. We all need to focus on that right now, and you can understand why.”
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Observers said that approach made sense, especially in light of what just happened in the US.
Wolfgang Schroeder, a political scientist at Kassel University, noted that the Democrats had hoped to improve their fortunes by substituting Joe Biden for Kamala Harris just months before the election.
“It injected some momentum, but it didn’t turn out to be long-lasting or effective,” he said. “For that reason I would advise the SPD against carrying out any grand experiments right now.”
MPs from the opposition CDU say that suits them, predicting that Scholz will be soundly beaten by their leader Friedrich Merz. “Olaf Scholz is the face of failure,” said CDU’s Spahn. “As such, we couldn’t wish for a better opponent.”