We think a bullish scenario could unfold if authorities unveil a larger and more broad-based stimulus package to prop up the fading economic expansion. In our assessment, a more definitive re-acceleration in China’s growth pulse, particularly across the domestically-oriented services sector, could encourage a recovery in capital inflows as the economy outperforms on a relative basis. Alternatively, a more shallow global slowdown, coupled with a faster and less disruptive deceleration in inflation – which might enable developed-economy central banks to shift away from restrictive policy stances sooner – could be a negative for the US dollar, helping support risk assets and Asian currencies including the yuan.

China activity indicators, annual % change