Deutsche Bank Research Economics Date How to make sense of the seeming divergence between China's economic fundamentals and financial markets? We make three observations: (1) the recent economic slowdown is caused by the government's "anti-involution" policy, which may be positive for corporate profits, and also implies a "policy put" should growth slows further; China Macro 25 August 2025 What's driving the risk-on sentiment? We've been frequently asked lately why the Chinese onshore market suddenly turned ...

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the macroeconomic environment and its implications for global markets, particularly focusing on the Federal Reserve's monetary policy and its impact on various currencies and equities. Core Insights and Arguments - **Dovish Remarks by Chair Powell**: Chair Powell's comments at Jackson Hole are interpreted as dovish, leading to a global risk-on rally. He indicated that the current policy is in a restrictive territory and suggested that the baseline outlook may warrant an adjustment in policy stance due to shifting risks [2][6][22]. - **Labor Market Concerns**: Powell highlighted that July payroll data raises downside risks for the labor market, which could lead to higher layoffs and rising unemployment if risks materialize quickly [6][22]. - **Market Reactions**: Following Powell's speech, US rates bull-steepened sharply, with a 90% chance of a Fed cut in September being priced in. The Russell 2000 small-cap index outperformed the S&P 500, indicating strong risk sentiment [6][22]. - **Currency Movements**: The US dollar weakened (DXY at 97.716, down 0.9%), while the Canadian dollar strengthened due to constructive trade developments with the US. The CAD extended its rally following the removal of retaliatory tariffs [6][7][22]. - **Equity Performance**: US equities rallied, with the S&P 500 Consumer Discretionary sector reversing previous weakness, indicating strong consumer sentiment [6][22]. Additional Important Content - **Global Rate Movements**: Euro area rates rallied in response to US trends, with yields falling 2-5 basis points across the curve. The ECB expressed reluctance towards further rate cuts despite the favorable external environment [6][22]. - **Tariff Revenue Estimates**: The Congressional Budget Office revised its tariff revenue estimates upwards, suggesting that maintaining current tariff levels could reduce total deficits by $4 trillion over ten years, potentially easing fiscal concerns [6][22]. - **Japanese Economic Indicators**: Japan's core CPI was reported at 3.1% year-on-year, slightly above expectations, indicating inflationary pressures that could influence monetary policy [11][23]. Conclusion - The conference call reflects a significant shift in market sentiment driven by dovish signals from the Federal Reserve, with implications for labor market dynamics, currency valuations, and equity performance across global markets. The potential for a September rate cut is a focal point for investors, alongside ongoing trade negotiations and economic indicators from major economies.