Please click on it before reading, so that you can continue to pay attention to relevant content later. #长文创作激励计划#
United States consumer price index (CPI) data for June was released, which rose less than the market expected and hit the lowest level in nearly two years. What does this mean? From an economic point of view, it is likely to be largely a sign that the Fed will start cutting interest rates in September.
It should be noted that Fed Chairman Jerome Powell also had a showdown, and even if inflation has not yet reached the 2% target, they are still likely to cut interest rates. So, for us, does it signal that the spring of RMB assets is coming?
The Fed's winds have changed abruptly
The recent headline inflation figures released in United States during June have been revealed, with the CPI index rising 3% year-on-year, well below expectations of 3.1% and the previous reading of 3.3%.
This data indicates that inflation is on a steady downward trend, and it is even more reassuring to the market that the core CPI data shows the same trend.
Therefore, we can conclude that the inflation situation in United States is improving at a faster rate than expected.
Based on the Fed's past reactions, once inflation returns below 3%, it is highly likely that the agency will implement monetary policy easing, i.e., lower interest rates.
Now, judging by the trends presented by the data, it seems that a September rate cut has become a certainty, and the probability of it is as high as 90%! This news undoubtedly had a profound and significant impact on financial markets.
The U.S. dollar index fell sharply in the first place, with the U.S. stock market, especially the technology-dominated sector, suffering a heavy loss, while the yield on the 10-year United States Treasury fell sharply by more than 2%.
At the same time, the RMB exchange rate showed an appreciation trend, and the international gold price also rose.
One might ask, shouldn't interest rate cuts be good for the stock market? Why is the stock market still plummeting?
To be clear, interest rate cuts can indeed stimulate the economy and support the stock market in the short term, but behind the rate cuts are concerns about slowing economic growth.
When the market sees a poor economic outlook, the stock market can instead come under pressure. So, whenever the Fed is forced to cut interest rates, most of the time the stock market will not do well.
The appreciation of the renminbi against the US dollar and the surge in the Chinese concept stock market also illustrate that the flow of international hot money is changing.
Funds are being withdrawn from high-valued AI stocks in favor of lower-valued, more attractive renminbi assets. This change in the flow of funds has brought us a lot of opportunities.
As things stand, a Fed rate cut in September is almost a foregone conclusion.
If the rate is cut as planned, it will be a big positive for us. Whether it is the property market, the foreign exchange market or the stock market, it can be alleviated to a certain extent.
So, what is Fed Chair Jerome Powell's attitude towards a rate cut?
Powell has a showdown!
Throughout this rate hike cycle, Fed Chairman Jerome Powell has given us the impression of a "hard-mouthed" style. Before the interest rate hike, no matter how the inflation data rose, he resolutely refused to admit the existence of inflation.
When inflation really reached a record high and started round after round of interest rate hikes, Powell still had a stubborn attitude, even if his own bank problems were frequent, he was resolutely unwilling to soften.
This time, Powell finally relented. Although Canada and the European Central Bank have already begun to cut interest rates, and the Fed is widely expected to follow, he has been reluctant to give any signal of a rate cut.
It wasn't until late yesterday night that he finally admitted that he no longer needed to wait for inflation to return to the 2% range before he could start discussing lowering interest rates.
This decision can be described as quite a breakthrough, because before that, he had always played Tai Chi, and this time he didn't pretend, and there was a showdown!
There are two key drivers behind the Fed's decision to cut interest rates.
Since the outbreak of the new crown epidemic in 2021, the United States government has issued huge financial assistance to the people to boost the economy, and now these funds are basically exhausted.
In addition, it is mid-July, and if the rate cut is not implemented in September, the road to re-election will be extremely difficult for President Biden.
Under such political and economic pressures, interest rate cuts have become almost inevitable.
Looking at the performance of the world's major stock markets, although the recent US dollar rate hike cycle has brought the overall stock prices of major markets to record highs, it is worth mentioning that the Chinese mainland stock market and the Hong Kong stock market have suffered a heavy blow during this period.
The many factors involved in this are too complex to be discussed here.
However, it is worth pondering and fascinating that the so-called "profit and loss homologous effect" triggered by interest rate cuts actually indicates that it is precisely us who are likely to be the biggest beneficiaries of interest rate cuts.
Because once the Fed starts cutting interest rates, money will flow out of the United States market and into those emerging market countries. Against this backdrop, China is undoubtedly one of the top destinations for capital inflows.
This is undoubtedly an opportunity for us.
Is the spring of RMB assets coming?
In the face of the news that the Federal Reserve is about to cut interest rates, the financial markets are in a frenzy, and everyone is celebrating this seemingly "capitulation" signal. The depreciation of the US dollar gave gold and global stock markets a chance to rise, and the renminbi appreciated sharply.
The exchange rate update just now shows that the exchange rate of the yuan against the US dollar has risen to 7.26, an increase of more than 300 basis points overnight. For veteran investors, the appreciation of the renminbi is usually a good sign for the rise of the A-share market.
Not only did the renminbi appreciate, but the gold market also saw significant volatility.
Gold prices continued to show a unilateral rally, with COMEX gold futures recording a significant increase of 1.79% in just one day, and the price climbed by as much as $44 to successfully hold a high of $2,400 an ounce.
Such an increase is a huge boost to market confidence.
Although the Fed's rate cut has not yet been officially implemented, their clear statement is enough for the market to react.
For now, although high interest rates are likely to remain high for some time and the dollar index may still hover around 100, the strong performance of the yuan has given hope for the future.
Speaking of the renminbi, its volatility is mainly affected by the dollar index and United States macro policies. With the end of the strong dollar cycle, the likelihood of a sustained sharp depreciation of the renminbi is diminishing.
If the renminbi can return to within 7, it will largely depend on our own economic recovery.
Judging from the latest economic data, although some data show marginal improvement, neither consumption nor the willingness of companies to expand is very strong.
The decline in external demand has also brought considerable headwinds to the economic recovery.
However, with the Fed's policy shift, we may no longer need to stick to the old "don't go against the Fed" mentality, but should learn to "go with the flow".
Now that U.S. stocks have refreshed their highs and gold has reached all-time highs, all the pressure seems to have shifted to the A-share market. But it also gives us an opportunity.
Once the dollar does enter a cycle of interest rate cuts, we can use the international influence and network we have accumulated over the past few years to attract more international capital inflows.
At that point, our exchange rate and foreign reserve crises may be resolved, and RMB assets will be revived. As for whether the United States will adopt a maximum rate hike strategy again in the future, it may not be so easy.
Now, the most important thing is to seize the opportunity in front of you and adjust your strategy to meet the possible inflows and market upswings. After all, financial markets are always looking for a new equilibrium in constant change.
Information sources: