China is poised to capture global attention as the National People's Congress (NPC) commences this week, with investors eagerly monitoring potential policy directions that could influence markets. The NPC is expected to announce an ambitious "around 5%" GDP growth target for 2025, reflecting China's commitment to robust economic expansion. Additionally, authorities are likely to adjust the inflation target from 3% to around 2%, focusing on price stability after recording an inflation rate of just 0.2% in 2024. This adjustment aims to restore normal levels rather than curb economic overheating.
The drive for technological self-sufficiency remains a top priority for China, signaling potential increased support for key sectors such as artificial intelligence, semiconductors, and cloud computing. Major technology firms like Alibaba, Tencent, Baidu, and SMIC stand to gain from expanded policy backing. Observers anticipate that Beijing might announce an official deficit ratio of 4% of GDP, an increase from the previously maintained threshold of around 3%, showcasing a willingness to invest in economic revitalization.
While the NPC is expected to reinforce China's policy direction, the critical question remains whether rhetorical commitments will translate into tangible actions. The market has already experienced a significant rally this year, suggesting that any failure to meet policy expectations could result in a correction.
In the broader financial landscape, the shift in risk sentiment has made it challenging for the US Dollar to gain traction. The EUR/USD pair has edged higher as market participants turn their attention to upcoming US data releases and geopolitical developments. Simultaneously, the GBP/USD pair has gathered bullish momentum, trading above 1.2650 in the latter half of Monday.
Gold prices have also experienced a rebound, recovering from a multi-week low near $2,830 on Friday and trading above $2,870 on Monday. This recovery comes as investors keep a close watch on the US economic indicators set to be unveiled this week.
The Institute for Supply Management (ISM) is preparing to release the February US Manufacturing Purchasing Managers' Index (PMI) report on Monday. As market participants await these figures, they remain attentive to how they might influence market dynamics.
China's anticipated policy announcements at the NPC are expected to have far-reaching implications not only within its borders but also across global financial markets. The focus on achieving technological self-sufficiency aligns with broader strategic goals, while adjustments in GDP and inflation targets reflect an adaptive approach to economic management.
As investors keenly observe developments at the NPC, they will assess how these announcements align with market expectations. The possibility of a corrective phase looms if policy measures fall short of investor aspirations.