💸 China's Bold Economic Gamble: Trillions to Be Injected!

Good Morning!

While we're seeing some green shoots with a 0.33% rise in Asian stocks, it's not all sunshine – we're still down 1% for the week. The real showstopper? The dollar's flexing at a two-year high as markets digest the Fed's "higher-for-longer" stance. Meanwhile, China's markets are barely keeping their head above water after yesterday's nosedive, with the CSI 300 crawling up 0.16%. The plot thickens with Trump's imminent return to office, leaving investors juggling between deregulation hopes and inflation fears. Markets are pricing in fewer rate cuts than Santa Fed promised in December, keeping the dollar mighty and equities nervous.

In today’s email:

• China: More stimulus on the way!

• Bitcoin: Rebounds to $97k

• IBIT ETF: Record outflows 

• Gold: Setting up for another rally soon!

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THE BIG IDEA

China unveils an aggressive economic stimulus package for 2025, featuring increased treasury bond funding and consumer subsidies, as Beijing doubles down on reviving its struggling economy

Here's the scoop on China's latest economic chess move: Beijing's pulling out all the stops with a massive treasury bond initiative for 2025, and it's not your typical stimulus package. They're rolling out an impressive 3 trillion yuan in special bonds – the biggest number we've seen yet. What's catching our eye? They're getting creative with the spending, launching consumer-friendly programs that let you trade in your old car or smartphone for sweet discounts on new ones.

The central bank's also keeping things interesting, hinting at potential rate cuts from the current 1.5%. But here's where it gets spicy: this push comes as China's juggling multiple economic hand grenades – a property market that's seen better days, local governments drowning in debt, and consumers keeping their wallets shut tight. Add to that mix the looming specter of increased U.S. tariffs under a potential Trump presidency, and you've got yourself quite the economic thriller.

The silver lining?

About 70% of last year's trillion-yuan bond proceeds already found homes in major infrastructure projects – we're talking railways, airports, and boosting security in key sectors. Despite these headwinds, NDRC's Yuan Da is keeping the optimism flowing, betting on continued economic recovery.The aggressive stimulus approach speaks volumes about just how serious Beijing is about turning this ship around.

What's particularly intriguing is the focus on digital products – they're not just throwing money at traditional sectors. The subsidy program specifically targets three categories of tech gadgets: smartphones, tablets, and wearables like smart watches and bracelets. This tech-forward approach suggests Beijing's commitment to modernizing consumption patterns while simultaneously propping up their domestic tech industry. It's a clever two-birds-one-stone strategy that could help reshape consumer behavior while supporting local manufacturers.

MARKETS AT A GLANCE

TOP NEWS

Capital Economics predicts a historic third consecutive year of 20%+ gains for US stocks in 2025, driven by AI momentum and economic strength

Wall Street might pull off a rare triple play in 2025 – Capital Economics is calling for another 20%+ surge in stocks, matching the late '90s dot-com era feat. Their crystal ball shows AI continuing to supercharge tech valuations, while America's economic muscle flexes stronger than global peers. Even with Trump potentially back at the helm, they're betting US markets will outshine international competitors.

Chinese markets stumble despite potential rate cuts, while South Korea's markets surge amid political turbulence and SK Hynix's AI push

A mixed bag in Asian markets today: China's CSI 300 dipped 0.18% despite bond yields hitting record lows and hints of rate cuts from PBOC. South Korea's stealing the show though – markets soaring 2%+ even as President Yoon faces arrest. The real eyebrow-raiser? SK Hynix jumping 5.43% on upcoming AI memory plans at CES 2025.

Federal Reserve faces a critical juncture as bank reserves plummet below $3 trillion, raising concerns about potential market stress similar to 2019's liquidity crunch

Bank reserves just took their biggest weekly nosedive since mid-2022, dropping $326 billion to $2.89 trillion. This plunge below the crucial $3 trillion mark has Wall Street on edge, especially as the Fed keeps its quantitative tightening program rolling. The big question: can they avoid another 2019-style liquidity squeeze?

CRYPTO

Bitcoin rebounds to $97k despite profit-taking from long-term holders, with analysts viewing the current cooldown as temporary before the next upward surge

Bitcoin's showing its resilience, bouncing back to $97,029 after a brief dip below $95k. While old whales are cashing in chips, causing some selling pressure, CryptoQuant's analysis suggests this isn't doom and gloom – just a healthy breather. The real story? U.S. institutions are still loading up on Coinbase, though premium rates are at two-year lows. Hold tight for the next leg up.

MicroStrategy’s Options Turn Cautious Amid Bitcoin Slowdown

MicroStrategy (MSTR), a leveraged Bitcoin proxy, has seen bullish sentiment fade as its record-high call skew turns neutral. With shares down 44% from November highs, the BTC-driven treasury narrative appears to be losing steam. Investors are questioning MSTR's valuation premium, as its underperformance against Bitcoin suggests waning confidence in its leveraged appeal.

Frax Taps BlackRock’s BUIDL for Stablecoin Backing

BlackRock’s BUIDL tokenized money market fund is now the backbone of Frax’s new frxUSD stablecoin, following swift DAO approval. Frax aims to combine blockchain transparency with the stability of U.S. Treasury-backed assets. Direct fiat conversion via Paxos and potential Federal Reserve access could further bolster frxUSD’s utility.

Record $331M Outflow Hits BlackRock’s IBIT ETF

Bitcoin investors pulled a staggering $331M from BlackRock’s IBIT ETF on Jan. 2, marking the largest outflow since its launch. This caps three consecutive trading days of withdrawals, totaling $391M. While competitors like Bitwise and Fidelity saw inflows, BlackRock’s massive outflow dragged total Bitcoin ETF activity into the red for the day.

GOLD

Gold Hits Two-Week High Amid Safe-Haven Demand and Trump Policy Uncertainty

Gold climbed 1.2% to $2,654.24, hitting a two-week high as geopolitical tensions and uncertainty around Trump’s protectionist policies fueled safe-haven demand. Analysts suggest early-year corrections could pave the way for a fresh rally, potentially targeting $3,000/oz. Silver and platinum also rose nearly 2%, signaling broad strength in precious metals.

DAILY ECONOMIC CALENDAR (ET)

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