3 February 2026 | 6:29PM HKT Economics Research China: Local "Two Sessions" point to a lower national growth target this year than last year Bottom line: As of today (3 February), 29 out of the 31 mainland Chinese provinces have officially unveiled their 2026 growth targets during their local "Two Sessions". Among the 29 provinces, 19 lowered their growth targets for 2026. Given recent policy communications, media reports, and signals from local "Two Sessions", we now expect policymakers to lower the nation ...

South African inflation expectations for the next two years fell in the fourth quarter, edging closer to the central bank’s new 3% inflation target https://t.co/VhW8CvvBgv ...

Group 1: Dollar Index and Federal Reserve - The dollar index (DXY00) is down by -0.18% amid expectations of a -25 basis point cut in the federal funds target range at the conclusion of the FOMC meeting [1] - The US Q3 employment cost index rose by +0.8% quarter-over-quarter, slightly below expectations of +0.9% [3] - Markets are pricing in a 93% chance of a 25 basis point cut by the FOMC [3] Group 2: Political Influence on Dollar - Concerns regarding President Trump's intention to appoint a dovish Fed Chair are negatively impacting the dollar [2] - Kevin Hassett is reported as the most likely candidate for the next Fed Chair, perceived as the most dovish option by the markets [2] Group 3: Euro and ECB Outlook - The euro (EUR/USD) is up by +0.14% due to a weaker dollar and supportive comments from ECB officials [4] - ECB President Lagarde indicated that the ECB is likely to raise its economic growth forecasts at the upcoming policy meeting [4] - ECB Governing Council member Simkus stated that the inflation rate is close to the 2% target, suggesting no need for interest rate changes in the near term [5] Group 4: Yen and BOJ Policy - The yen (USD/JPY) is down by -0.28% as it strengthens against a weaker dollar [6] - Japan's producer prices remained above 2% last month, which is a hawkish indicator for BOJ policy [6]

Market Outlook - The current market is characterized as a high-risk bull market, with a path of least resistance pointing higher due to the Federal Reserve's rate cuts and rising earnings estimates [1] - Speculation and valuation concerns contribute to the high-risk nature of the market, indicating potential volatility ahead [1] Federal Reserve Insights - There is uncertainty regarding the Federal Reserve's decisions, with expectations of rate cuts fluctuating from an 80% chance to a 90% chance [1] - The Fed's history shows that cutting rates significantly without a recession is unusual, raising questions about the sustainability of current economic conditions [1] - The Fed's target inflation rate of 2% may need to be reassessed, as current inflation is expected to remain stubbornly around 2.8% [1][1] Economic and Sector Performance - The economy is anticipated to remain stable, with few rate cuts expected next year [1] - The stock market is experiencing rotations between technology and non-technology sectors, with cyclical sectors gaining traction [1] - Volatility, as indicated by the VIX, is expected to continue, reflecting uncertainty in market direction [1]

UK wage settlements are forecast to remain well above the 3% to 3.5% the BOE deems compatible with its 2% inflation target https://t.co/4FrbJxDUGp ...

Core Insights - The current economic growth, driven by the AI data center boom, is not translating into significant job growth, indicating a potential disconnect between GDP growth and labor market strength [1][3] - The Federal Reserve is expected to continue cutting rates due to a weakening labor market, despite inflation being slightly above their target [4][5] - A K-shaped recovery is observed among consumers and corporations, suggesting that not all sectors are benefiting equally from the economic growth [6] Federal Reserve Expectations - The Fed's plans for rate cuts may be disrupted by labor market weaknesses, which could lead to a more stimulative approach [4][5] - A December rate cut is anticipated, with additional cuts likely in the following year as the labor market continues to weaken [5][6] - The Fed is currently above neutral and may continue to cut rates to avoid being restrictive [7] Fixed Income Market Implications - Weakening labor market conditions and potential Fed rate cuts could lead to favorable returns for fixed income investors, particularly in the front to belly of the yield curve [9][10] - The market is pricing in Fed funds forecasts that are considered too high, suggesting benefits for those taking interest rate risks [10][12] - A diversified portfolio that includes emerging markets and securitized products is recommended to capture higher yields and spread opportunities [13][24] Investment Strategies - Agency mortgage-backed securities and commercial mortgage-backed securities are highlighted as attractive sectors due to their potential for spread compression and benefits from falling interest rates [18][19] - The recently launched Eaton Vance Income Opportunities ETF (XAGG) aims to provide exposure to a barbell approach in fixed income, focusing on sectors that offer higher yields and diversification [20][21] - The ETF targets a weighted average investment grade, ensuring a balanced risk profile while seeking outperformance compared to traditional fixed income investments [22][23] Long-term Outlook - Fixed income returns are expected to be centered around current yields, with a potential for additional returns through strategic interest rate and curve positioning [26][27] - High base treasury yields are seen as a hedge against risk assets, particularly in a balanced portfolio [28][29] - Inflation is projected to stabilize around 2% in the coming year, which would benefit fixed income investors as tariff-related inflation subsides [30]

Group 1 - The monetary policy is focused on balancing downside risks to maximum employment and upside risks to price stability, with increased downside risks to employment as the labor market cools [1] - The Federal Open Market Committee (FOMC) has reduced the target range for the federal funds rate by 25 basis points in its last two meetings to restore inflation to a sustained 2% goal [2] - The current monetary policy is viewed as modestly restrictive, with potential for further adjustments to align the policy stance closer to neutral, maintaining a balance between employment and price stability goals [3] Group 2 - Future policy decisions will be based on the evolution of data, economic outlook, and the balance of risks related to maximum employment and price stability [4]

South Africa’s central bank resumes its easing cycle as it trimmed its inflation forecasts following the formal adoption of a 3% inflation target https://t.co/ciwrj6h4jh ...

Economic Outlook - The global economy is undergoing significant changes due to shifting monetary policies, inflation pressures, and technological advancements, leading to concerns about potential market corrections [1] - There is a distinction between "cockroaches," which represent manageable risks, and "termites," which threaten the integrity of the economic system [2][3] Risks and Concerns - Economic accidents are anticipated due to stretched financial conditions and increased risk-taking by investors, but systemic shocks are not expected [4] - Concerns are rising regarding lower-income households facing significant financial pressure and the need to refinance debt at higher interest rates [6][8] Income Disparity - The wealth generated in the market has not translated to lower-income consumers, who are experiencing affordability issues, leading to potential economic contagion if spending declines [9][10] - The K-shaped economy highlights the disparity between high-income consumers and those at the lower end, with the latter group potentially entering a recession [8][9] Federal Reserve Insights - The next Federal Reserve chair will inherit a divided institution, with differing views on prioritizing employment versus inflation [16][17] - There is a call for the Fed to adopt a more forward-looking approach, particularly regarding the impact of AI on productivity and growth [18][30] AI and Productivity - AI is seen as a potential driver of productivity, but there are concerns about a corporate mindset focused on cost minimization rather than labor enhancement [31][32] - The current investment landscape in AI is characterized as a "rational bubble," with significant opportunities but also risks of losses due to overvaluation [35][38] Policy Recommendations - Policymakers are urged to recognize that future economic outcomes will be determined by the extremes of income distribution rather than a traditional bell curve [39]

Monetary Policy - South Africa's finance minister supports a 3% inflation target [1] - This gives political backing to the central bank's advocacy for the change [1]