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Today’s Points:

• Ahead of a likely rate cut, the dollar is at its weakest since early 2022;
• A record number of investors think the S&P is overvalued, and want to buy more;
• China’s growth is disappointing — and much better than everyone else’s;
• Trump wants to do away with quarterly reporting, which isn’t a bad idea;
• AND: An FOMC-Day playlist.

At Last We’ll FOM See

It’s decision day from the Federal Reserve, and global markets are already enjoying the fruits of the expected rate cut. The dollar enters the day at its lowest since the beginning of the Fed’s 2022 rate-hike cycle:

This is what President Donald Trump’s administration wants, and eases financial conditions for anyone around the world who needs to finance in dollars. Now the paradoxes start. Investors expect a cut, and they’re buying risk assets on the back of it, but also expect inflation. The latest survey of global fund managers by Bank of America Corp. shows the biggest gap between rate and inflation expectations ever:

A record 58% of those surveyed also now believe that global equities are overvalued. It’s not so long since an over-juiced stock market was reason for the Fed to hike — most famously after Alan Greenspan warned of “irrational exuberance” in late 1996 — but this time the Fed can go right ahead and cut:

Fund managers are, to be clear, fully mindful of the dangers. They now perceive a “second wave of inflation” as the biggest tail risk to the rosy scenario, followed by dollar debasement and a disorderly rise in bond yields — all of which are more likely if this rate cut proves irresponsible. A potentially damaging trade war seems to have vanished from the equation:

If this were to happen — and it’s not a base case yet — then there is still much room for capital to flow out of the US. Contrary to perception at the time, foreign investors increased their holdings of US stocks in the second quarter, according to Deutsche Bank AG. With foreign ownership at a record, the scope for a big run on the dollar if inflation were to return in full force is real:

BofA’s research suggests that the fun on the dollar earlier this year was driven more by foreigners hedging the risk of a weaker greenback, which can be a self-fulfilling prophecy, rather than full-blown capital flight. Almost nobody now sees any reason to hedge against a stronger dollar, even with the currency at its weakest in almost four years:

In the shorter term, there’s a chance of a dollar rebound, particularly if the Fed is more hawkish in its projections than expected. Longer term, rate cuts when inflation is not beaten and equities look too expensive is a hazardous proposition. People seem wide awake to those dangers, but for now they’re still filling their boots with stocks.

Spare Us the Quarter

Readers have kindly pointed out that Points of Return isn’t always very positive about the Trump administration. They could be right. So it’s with some relief that I wholeheartedly recommend the president’s call to move away from quarterly reporting. It’s provoked opposition on Wall Street, but it’s a good idea; it can legitimately be done largely through administrative actions, and it would help, as Trump says, allow companies to spend more time running their businesses.

It would also help the rest of the world. The US is quite unusual in requiring quarterly accounts, which are optional in most other large jurisdictions. However, as executives want to attract investment, they often feel obliged to publish every three months. This could be an opportunity for American leadership to take the world in a more long-term direction.

The argument against quarterly earnings is that it tends to degenerate into a game of expectations management, and often prompts executives to make short-sighted decisions on matters like capital expenditures to ensure they beat targets. It also, as Trump says, takes up time that might be better spent elsewhere, and acts as a disincentive to companies to go public.

The argument in favor concerns transparency. In principle, companies should be required to come clean with their shareholders on a regular basis. Lightening that requirement would carry risks. In particular, it would create wider windows and greater opportunities for insider trading, as the imbalance of knowledge between businesses and their shareholders would widen.

To counter this, Sarah Williamson of FCLT Global, a coalition of companies looking to promote long-termism, argues that the rules on when firms issue what are known as 8-Ks need to be revised. The bar for announcing between quarterly reports a significant change to a company’s prospects would need to be lower. For example, winning a big new contract might henceforward require a special announcement to the stock exchange when under current rules it can wait until the end of the quarter. What really matters, as Williamson puts it, is the materiality of what to tell investors, not the periodicity. 

If it hastens the end of quarterly guidance, in which companies set targets that they then feel obliged to meet at whatever long-term cost, so much the better.

Any reform will need to be done carefully. But it’s a good idea, and it now behooves the Securities and Exchange Commission, and the administration behind it, to get it right.

China’s Deep Slumber 

China’s post-pandemic growth story remains lethargic, and its contentious relationship with the US doesn’t help. Few China watchers believe that Trump’s scheduled call with President Xi Jinping on Friday, arranged after two days of trade talks in Madrid, will change the balance between the two superpowers. And yet there’s no discernible effect on China’s markets. 

Stocks, labeled uninvestable in the West as Xi started to clamp down on the private sector in 2021, hit bottom almost exactly a year ago, when reports of a new stimulus campaign began to emerge. They’ve gained about 50% since then, with both international and domestic investors getting involved. There’s a long way to go, but it looks like the trough is in:

Chinese long-bond yields had been falling precipitously as the narrative of a Japanese-style slowdown took hold. Thirty-year yields are, remarkably, above those of Japan. But they have stabilized and risen a bit over the last few months. The market seems to think the new reality is adequately priced: 

This has happened even though there is still little sign that the big problems in the US-China trading relationship can be overcome. Firstly, there is Beijing’s adverse antitrust findings against Nvidia Corp., which are likely to irk Washington. China’s State Administration for Market Regulation ruled that the US chipmaker violated antitrust regulations in its acquisition of networking gear maker Mellanox Technologies Ltd. This contrasts with Washington’s agreement with Beijing on a framework to keep TikTok operational in the US.

Friday’s call will likely offer clarity on the deal. Despite Trump saying his relationship with Xi is “a strong one,” the latest overtures at best maintain an awkward status quo. Late July’s 90-day tariff pause, which expires in mid-November, could see a return of reciprocal levies imposed on Beijing in April, reigniting trade tensions.

For Beijing, the reality of modest gains from painstaking stimulus measures shows that it cannot rely on the US to dig it out of the quagmire. If the property slump-induced economic slowdown was disquieting, the latest data on factory output, retail sales and investment point to an across-the-board deceleration and offer no comfort. Nevertheless, Harry Colvin of Longview Economics argues that the case for a cyclical recovery remains intact. He notes that Beijing’s ongoing monetary expansion and fiscal support is approaching levels consistent with prior stimulus phases that led to economic rebounds. 

The People’s Bank of China is on course to reduce its interest rates once the Fed has moved. Any potential monetary policy loosening makes it easier for Beijing to meet its 5% growth target. A rate cut would also battle persistent deflation and a slowdown in private-sector loan growth. Typically, during Fed loosening cycles, Colvin argues that “hot money flows” switch back into China, providing a leeway for reciprocal policy easing as illustrated in this Longview Economics chart:

The latest depressed data suggests the chance of an imminent, meaningful fiscal-policy response. So far, the pivot to “whatever it takes” has not yielded any drastic intervention. Instead, Bob Elliott of Unlimited Funds explains that the “anti-involution” campaign, an effort to prod manufacturers in over-competitive sectors to curb price cuts and avoid deflation, has changed from stability (via building excess capacity) to more prudent investment. That is a successful supply-side measure. Meanwhile, Gavekal Research shows that the demand-side remains weak despite attempts to jump-start consumption:

According to Elliott:

The ripple effects of the abrupt slowing of investment as a growth engine are becoming clear, driving a clear slowing across the economy that appears to be picking up momentum. Without a meaningful shift in policy stance, the economy is set to clock its worst quarters since Covid. 

Is there a chance of a turnaround? Gavekal Research’s Wei He believes so as constraints on infrastructure spending should ease with more funding becoming available for localities. But if the investment pullback isn’t a statistical mirage, it will start to derail output:

While the outlook is thus uncertain, real economic growth remains broadly in line with the full-year target of around 5%. GDP growth reached 5.3% in the first half of 2025, and the July and August data are consistent with 4.6-4.8% growth. Officials will probably introduce more incremental measures in the coming months to ensure that they reach the target. 

Unless growth takes a sharp turn lower, policymakers see little reason to juice demand. Years of muted responses — which have co-existed with growth that remains on target — suggest that the era of big stimulus packages is over. If anything, Beijing’s campaign against involution shows it prefers short-term restraint in the service of longer-term stability.

-- Richard Abbey

Survival Tips

As FOMC Day has arrived, you really need a play list of music to get you through the experience, don’t you? Last year, ahead of what turned out to be a jumbo cut, Bloomberg Opinion put together this playlist on Spotify, with tracks from The Cutter through I Might Say Something Stupid to (of course) When Doves Cry. It’s recommended. Extra suggestions welcome. 

More From Bloomberg Opinion:

• Liam Denning: Musk’s $1 Billion Tesla Stock Buy Doesn’t Prove He’s Back
• Noah Feldman: The DOJ Is Using Bad Lawyering to End Fed Independence
• Juliana Liu: China’s Growing Global Reach Is Already Causing Turmoil

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