Last night, the financial world was shaken by the announcement of China's latest monetary policy, leaving Wall Street traders to burn the midnight oil, closely monitoring the performance of the Chinese marketsStatements issued were unparalleled since 2014, generating considerable anticipation among investorsThe performance of Chinese stocks listed in the U.Shas become a barometer of overseas investors’ expectations regarding China’s economic climate.

The Golden Dragon Index surged by an impressive 8.5%, reflecting Wall Street's perspective that it was better to invest incorrectly than to miss out on potential gainsHowever, contrasting expectations from foreign investors, the Chinese domestic market exhibited a significant divideThe A-share market did not rally as expected, with many traders opting to sell at the early surge instead of holding out for greater gains.

As the financial skirmish between China and the U.S

reaches a fever pitch, one might wonder whether A-share investors have already thrown in the towel or if there is a deeper reason for China's challenges in the financial realm.

The foreign exchange market has emerged as the principal battleground in this tussleFollowing the announcement of the latest monetary policy, not only did Hong Kong’s Hang Seng Index respond positively, but the dollar index also aimed for a reboundAs of today, despite maintaining a robust position, the off-shore Chinese yuan’s exchange rate has moved in the opposite direction, demonstrating an increase—a surprising turn of events in the currency market.

Essentially, this indicates that while the supply of money is expanding in China to stimulate economic growth, the credibility of the yuan has simultaneously improvedAs a result, international capital is leaning towards purchasing more yuan to safeguard their investments against depreciation

• Dollar and Emerging Market Currencies: A Complex Relationship
• Hollywood or Hollow Promises? Navigating Film Investment Risks
• Yuan Plunges: Signaling a Global Economic Sea Change
• Financing Fuels Economic Growth: Banks Lead the Charge
• Tariff Threats Could Boomerang

This stands in stark contrast to the dollar’s journey, where a stronger U.Sdollar requires the Federal Reserve to keep interest rates high and withdraw excess dollars from the market, leading to a scarcity that fuels the dollar's strength.

Currently, the off-shore yuan has increased in value by 0.36% against the dollar over two days, even while the dollar index has risen by 0.32%. This translates into an approximate 1% appreciation of the yuan against other currencies such as the yen, euro, and poundThis reinforces the central bank's assertion that the yuan lacks a basis for sustained depreciation.

In the ongoing financial contest between China and the U.S., the main conflict area lies in the currency marketsThe U.Scurrently requires a significant depreciation of the yuan to gain cost-effective access to yuan-denominated assetsThe hope is to sell these assets at a higher price once the yuan appreciates again.

Since the start of the financial conflict around 2022, the Federal Reserve's hike in interest rates prompted a passive depreciation of the yuan by about 15%, yet since then, the yuan's exchange rate has remained comparatively stable, hovering around the 7 mark

Furthermore, the Shanghai Composite Index only escalated from approximately 2700 points to around 3600 points following the Fed’s announcement of interest rate cuts and the Chinese central bank's subsequent easing measures.

The A-share market's rise is attributed not only to domestic monetary policies but also to international easing strategiesHere, the interest rate differential between China and the U.Splays a crucial role in determining market behavior.

Why, then, do stocks surge only to fall back shortly thereafter? Many A-share investors, after the initial euphoria surrounding the good news, take a step back to ponder whether the glad tidings will meet the expectations of the majorityMoreover, they reflect on past instances to gauge how accommodative this monetary policy might actually be.

Especially during the ongoing financial conflict with the U.S., although China has proposed lax monetary policies and active fiscal measures to stimulate the economy, everything hinges on certain prerequisites

One key condition is the backdrop of the Fed’s interest rate cuts; as it stands, yields on China’s ten-year government bonds are below 2%, while those in the U.Sexceed 4%. Analysts predict that U.Sbond prices will decline further next year, leading to an increase in yields.

Should the yield differential between Chinese and U.Sbonds widen to over 3%, further easing of China's policies may push substantial liquidity into U.Smarkets to acquire American bondsSuch spontaneous market behavior could exert immense pressure on the yuan’s value, complicating the repatriation of foreign exchange earnings for Chinese companies and placing added stress on China's financial market.

Thus, for Chinese investors, both China's monetary stance and the Fed's policies are of paramount significance, intertwining with the nation’s financial securityFurthermore, it is almost certain that the Federal Reserve will reduce rates by another 25 basis points in December; the trajectory of U.S

monetary policy beyond 2025 remains uncertain.

Nevertheless, this ambiguity does not imply a pessimistic market outlookIn the coming week, more details are expected to emerge from upcoming economic and fiscal stimulus announcements, evoking a sense of anticipation among market participantsWhile the fate of American stocks lies in the hands of Wall Street's financial titans, the performance of Chinese stocks will depend largely on how retail investors perceive the policy's implications.

In conclusion, pricing power resides with different stakeholders, leading to divergent market trendsPresently, the international financial markets are increasingly optimistic regarding the future value and pricing of yuan-denominated assetsAmid the robust rise of the dollar, the yuan's deliberate appreciation signifies that international capital is actively buying yuan, regardless of potential investments in yuan assets.

Meanwhile, Wall Street traders eagerly await the U.S