Policy Tilt Toward Growth
Policy focus was expected to lean towards supporting growth rather than containing inflation. This would place more weight on fiscal policy rather than monetary policy. The 2026 GDP forecast was kept at 4.6%. The oil-related drag was expected to appear later in 2026, with room for fiscal measures to offset it. Comments in a Financial Times interview raised questions about US–China relations. A possible cancellation of a China trip by Donald Trump was linked to the risk of renewed tariffs and market volatility. China’s economy has shown a strong start to the year, particularly with government-driven investment in manufacturing and exports. We’ve seen this in the recent industrial production data for January and February, which showed a 5.5% year-over-year increase, beating consensus forecasts. This underlying strength provides a somewhat stable base for Chinese equities, but significant risks are emerging that traders must now price in.Market Volatility Triggers
The conflict in the Middle East is a primary concern, directly impacting industrial companies through rising input costs. With Brent crude futures now trading above $95 a barrel, a level not sustained since late 2024, the pressure on manufacturers’ profit margins is intensifying. This situation makes protective put options on industrial sector ETFs an increasingly prudent strategy for the weeks ahead. We expect Beijing will respond with fiscal stimulus rather than monetary tightening to shield its 4.6% GDP growth target. Looking back, this aligns with the policy playbook from 2025, when the PBoC cut the reserve requirement ratio to boost lending and support a flagging property sector. This policy divergence with the West could place downward pressure on the yuan, making options that bet on a higher USD/CNH attractive. The most immediate catalyst for volatility, however, is the upcoming decision on Trump’s visit to China. A cancellation would signal a severe downturn in relations and likely trigger a market sell-off based on fears of renewed tariffs, which previously impacted over $300 billion in goods. Traders should therefore consider buying volatility through instruments tied to the Hang Seng index or purchasing out-of-the-money puts on major Chinese ETFs as a short-term hedge against this binary event. Create your live VT Markets account and start trading now.
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