December strength was seasonality from under-hedged exporters rushing to convert. Momentum in January likely less strong. CNY/CNH likely to hover around 7 in foreseeable future. PBOC wants to tame speed of very fast appreciation, but appreciation expectation is here to stay due to structural trade surplus and renminbi internationalization push.

Deepest deflation pressure is behind us. PPI deflation likely to narrow further with rising commodity prices. But not yet a year for inflation; it's year of gradually moving away from deflation. Expect GDP deflator close to zero, not yet zero.

Signs of recovery remain relatively modest. Government focusing more on reviving investment. First batch of special bond funds for infrastructure almost double vs Q1 last year. But consumption push not as strong as last year; goods subsidy funds down >20% vs Q1 last year. Expects muddle-through situation, not very rosy H1 numbers due to high base.

Aggregate fiscal expenditure likely similar pace to last year. Key difference is reallocating funds: scaling back direct subsidy (e.g., home appliances) but strongly stepping up infrastructure investment. Has fiscal constraints, especially from local governments. Year of consolidation and transformation; policy remains expansionary but focus on structural reform.

Yield curve might stay quite steep through entire first half. PBOC reluctant to cut rates aggressively. Technical factors support back end: strong ultra-long bond supply, but lack of demand from non-banks when equity momentum holds up.

Could look at front end of China rates curve. At very front end, still relatively comfortable. Market completely pricing out rate cut expectation is a bit extreme. Would wait until second half for performance to gain momentum; first half more rangebound.