The Dow rumbles higher
The Dow didn’t just drift higher on Wednesday — it powered forward like an icebreaker through late-summer seas, racking up 400 points and parking just shy of record territory. The S&P 500 eked out a modest gain, and the Nasdaq stayed afloat after an earlier wobble, but the real driver wasn’t a sudden burst of corporate earnings magic. This was macro fuel — the kind of high-octane mix of “better than feared” inflation and full-bore rate cut expectations that has the market’s animal spirits pounding the desk.
Tuesday’s CPI print was the catalyst. Yes, core prices ticked up, but not enough to spook the tape. Instead, it cracked open the door to September easing and the market kicked it wide. By Wednesday afternoon, the futures curve was fully pricing a cut, with odds of a jumbo 50-basis-point slash creeping higher. Treasury Secretary Scott Bessent poured accelerant on the fire, calling for not just one cut, but a full easing cycle — 150 to 175 basis points over the coming year. That’s not a “fine-tune”; that’s the monetary equivalent of strapping a nitrous bottle onto an already red-lined market and hitting the purge button — the kind of move that turns a fast climb into a neck-snapping surge.
Meanwhile, the bond market heard the message loud and clear — two-year yields slid to 3.69%, the dollar softened, and rate-sensitive sectors lit up. Small caps, which had been in the penalty box most of the year, ripped 1.6%. High beta and debt-heavy names surged, while even the big tech generals showed mixed but net-positive action. Apple and Amazon caught a bid, crypto firm Bullish ripped higher on its debut, and the VIX fell to its lowest reading since December — volatility itself deciding to take a vacation.
But the liquidity story isn’t just Washington’s to tell. Beijing’s pipes are starting to gush. July’s M1 money supply grew 5.6% y/y — not just a beat on the 5.2% estimate, but a marked jump from June’s 4.6%. Crucially, the driver wasn’t government coffers or household cash; it was corporate demand deposits swelling. That’s a tell that firms are moving from idle balance-sheet defense to gearing up for activity — shifting funds out of savings and into loan-fueled expansion. In other words, animal spirits in China aren’t just twitching — they’re waking up.
And while China officially runs a closed capital account, in practice it’s more like a sieve. The math is straightforward: subtract the PBOC’s FX reserve change and FX deposits from the trade surplus, and you find almost $200 billion a year slipping across borders — a flow that’s only getting larger. In a world where China’s trade surplus remains at all-time highs despite U.S. efforts to chip away at global imbalances, that liquidity doesn’t just slosh around Shanghai; it ripples through global asset markets.
Now line up the moving parts: Fed cuts all but a fait accompli, Chinese money growth accelerating, a labor market flashing early fatigue, and tariffs not yet biting hard enough to choke demand. The combination is rocket fuel for risk assets in the short run — exactly the kind of backdrop where buy-the-dip turns from a retail meme into a self-fulfilling institutional strategy. Even the S&P 500’s breakout from its recent range looks like an engraved invitation to keep pushing higher, with every shallow pullback acting as a new launch pad.
The catch? This isn’t textbook central banking. Rate cuts when inflation is still above target are the kind of thing you usually see when the Fed’s playing politics, not just data. Tariff-exposed goods didn’t flare in July, but if they do later this year, the inflation script can flip violently. That’s the longer-term hazard: flood the system with liquidity now, and you risk finding yourself mopping up a mess in six months.
For now, though, the path of least resistance is clear. Liquidity is on the march — from Washington’s policy table to Beijing’s banking channels — and markets are surfing it with both hands in the air. Just remember: waves look biggest right before they break.
China’s retail engine redlines as the liquidity pumps roar
While the U.S. crowd is busy spraying champagne over fresh all-time highs, the real street race is happening on the other side of the Pacific — and this time, it’s not a state-choreographed parade. Overnight, Chinese equities punched higher in a clean follow-through to the U.S. post-CPI melt-up, stretching a rally that’s been grinding higher since April. The CSI1000 has now clocked a 12% run from those lows, built not on “National Team” scaffolding, but on unfiltered, octane-heavy demand.
The cockpit is all retail. Margin loans have smashed through a ten-year high, proof that the locals have both hands gripping the wheel and their foot buried in the floorboard. And yet, the gauges aren’t in the red — positioning still isn’t stretched by historical standards. This is a rally that hasn’t even hit top gear, with Beijing’s invisible hand content to watch from the pit wall.
Policy, though, is quietly oiling the engine. Fresh subsidies on consumer loan interest are dropping straight into the household spending tank. In the corporate lane, the “anti-involution” pact — eight lithium battery giants agreeing to freeze capacity expansion — has tightened the supply map and sent the sector tearing higher. That’s not jawboning; that’s a coordinated downshift designed to keep margins fat.
Tech’s adding afterburners. Tencent surged 4.7% into earnings and then delivered a clean beat across the board: Q2 revenue +15% y/y, operating profit +18%, games +22%, ads +20% — every key line comfortably ahead of consensus. That’s the kind of print that doesn’t just keep the rally alive, it throws nitrous into the intake.
Flows tell a different kind of story. The HK Top Short basket ripped 2.7% on covering pressure, roughly in line with the Hang Seng’s gain. Southbound money — usually the tide lifter — was actually a $1.1 billion net seller, their fourth-biggest dump this year. The rally didn’t need them; it ran without the usual tailwind.
The silent power source is liquidity. June’s money supply rose 4.6% y/y, the biggest jump in over two years. That’s not just spark — that’s a sustained feed to the engine, enough to keep pistons hammering even if profit-takers drift in. Liquidity like this doesn’t just stay bottled up domestically, either. For all the talk of a “closed” capital account, China leaks cash like an old racing carb — and plenty of that fuel finds its way into global markets.
The trade here isn’t complicated. The carry on Chinese SMIDs — CSI500 and CSI1000 — is still fat, and the skew favors the upside. Funding outperformance on the CSI1000 is running ~12% annualized again after a brief breather, the CSI500 has richened too. These are “peace of mind” positions — clipping double-digit carry.
Right now, China’s retail engine is running hot, liquidity is still pouring into the tank, and policy has its foot on the accelerator without oversteering. This isn’t a setup you fade; it’s the kind you ride — right up until you catch the whiff of burning rubber.