Currently, the United States is brewing a hurricane-like cycle of harvesting storm, selling off the trillions of dollars of financial bubbles and soaring debt deficit risks accumulated since the subprime mortgage crisis at a speed that is faster than the blink of an eye.
The financial research team has observed that the Federal Reserve is influencing the fluctuations of the US dollar index by releasing different hawkish or dovish expectations, thereby achieving the dollar tidal wave harvesting effect formed by interest rate cuts to shift, pass the buck, and spill over the continuously rising debt deficit, inflation pressure, and the risk of economic recession in the United States, to further alleviate the impact on its balance sheet on the brink of collapse. It is clear that the United States is about to start passing the buck.
For example, Nick Timiraos, a Federal Reserve mouthpiece reporter known as the "New Fed Wire," said in his latest suggestive article published on September 27, "Even if the Federal Reserve cuts interest rates significantly now, it is still far from ultra-low interest rates, and the interest rate cut has not significantly boosted demand. The 'soft landing' is still an unknown."
This has led the market to interpret it as an article commissioned by the Federal Reserve, just like when the Federal Reserve urgently passed the institution's wind to quickly shift the market direction to a significant interest rate cut on the day of the September interest rate meeting, superimposed with factors such as the chaos of the US election and the US port strike, which have increased concerns about a US economic recession, leading Wall Street traders to increase bets that the Federal Reserve may cut interest rates by 50 basis points again in November.
At this critical moment, Federal Reserve Chairman Powell dropped a "deep-water bomb" of "not in a hurry to cut interest rates quickly" into the US financial market on October 1, ruthlessly extinguishing Wall Street's bets on another 50 basis point interest rate cut in November, sending the strongest harvesting turn signal to the market and pushing the US financial asset market to an imminent major liquidation moment.
Subsequently, Federal Reserve Governor Bostic further stated on October 2 that the basic situation for the Federal Reserve to cut interest rates is to implement "orderly" easing under the condition that inflation is expected to continue to slow down and the job market remains strong. However, the latest data released by the United States in recent days, including the continuous contraction of the manufacturing industry, the employment rate deep in contraction, the unexpected new high of job vacancies for three months, and the port strike that may trigger rising inflation, all indicate that the conditions for a significant interest rate cut have changed. This suggests that the Federal Reserve may interrupt or slow down the pace of interest rate cuts at any time, which contrasts with the tone of a majority of Federal Reserve governors supporting a significant interest rate cut last week.
According to the CME Group's FedWatch tool, a Federal Reserve policy interest rate observation tool, on October 3, the possibility of the Federal Reserve cutting interest rates by 25 basis points in November has risen from 42.6% last week to 65.7%, and the probability of a 50 basis point interest rate cut has plummeted to less than 30%, leading more and more Wall Street investment banks to believe that the US dollar index has now reached the bottom, stimulating the ICE US dollar index to soar by about 1% in the last three days.
This further confirms that as the United States switches between tight and loose monetary policies, using the US dollar's status as the world's main reserve currency to collect seigniorage, the spillover effect of the fluctuations in the US dollar index will indirectly be transmitted to the financial markets and commodity asset markets of some economies in an environment of global economic growth decline.
Under the hurricane-like harvesting cycle effect of the dollar tide, the economies, assets, and exchange rates of these markets will continue to be affected, which makes the economies of Japan and India shudder, being heavily sold off and experiencing a capital outflow tide.
Japanese Prime Minister Ishihara, who has just taken office for less than two days, has unexpectedly clearly sent a "refusal to raise interest rates" signal of submission, which is a strong feedback to the US dollar index after Federal Reserve Chairman Powell issued a harvesting turn at a speed faster than the blink of an eye. The latest data and news are confirming this trend.Following closely, on October 3rd, Bank of Japan (BOJ) board member Asahi Noguchi stated that Japan must patiently maintain an accommodative monetary policy, as it takes time to eliminate the public's perception that prices will not rise significantly. The day before he made the aforementioned remarks, the newly elected Prime Minister, Shinzo Abe, abandoned his hawkish stance and told the BOJ not to raise interest rates further in the current environment, as the Japanese economy is not yet ready for another hike by the central bank.
This indicates that there is a 50% chance the BOJ will raise interest rates by 10 basis points before December, and it is only likely to raise rates once next year, with the rate increasing from the current 0.25% to 0.5%.
As soon as Japan's softening rhetoric on defending the yen's appreciation was heard, the Japanese stock market rebounded from the continuous sharp declines of recent days. Earlier, data from BNP Paribas showed that more than $20 billion had been withdrawn from the Japanese stock market in the first three weeks of September. However, the yen was immediately heavily sold off in the market, with the currency falling sharply by about 2%. As of the time of writing, it is still maintaining its downward trend, with the US dollar against the yen reaching as high as 147.4, a new high since August 20th.
Meanwhile, on October 3rd, the Indian stock market continued to widen its losses, with the Nifty and Sensex indices closing down by more than 2.7%, marking the largest decline in two months. In just three trading days since September 30th, foreign investors have heavily sold off as much as 3 trillion rupees worth of Indian stocks, withdrawing from India and turning to higher-yielding Asian markets to express concerns about India's investment environment, tax disputes, procurement rules that limit competitive choices, and the business environment, facing skepticism from Wall Street, prompting some agile international funds to turn their attention to the East.
According to data released by an Indian official institution on October 3rd, foreign funds, including those in manufacturing, have withdrawn nearly 10 trillion rupees from India since the country began tightening monetary policy in 2022. This is more than three times the net outflow during the 2008 US financial tsunami and at least the highest annual withdrawal in the past 20 years.
The latest report analysis from some Wall Street investment banks indicates that the stock markets of Japan, India, South Korea, Indonesia, Malaysia, and Thailand have not seen net outflows of funds in the past week. Next, some funds that have retreated from the stock markets of Japan, India, and Southeast Asia will enter the Chinese stock market to purchase renminbi assets.
Data shows that the Chinese stock market has soared by 25% in just one week, which is an extraordinary achievement. Analysts expect the Chinese stock market to continue growing, indicating that foreign buyers' excitement has shifted to the Chinese market. It is clear that this will become an east wind for the renminbi.
Analysis suggests that a large number of astute international investors have already turned their investment direction and have begun to lay out long positions in the renminbi. In the context of the renminbi's consecutive appreciation and sustained counter-offensive in recent weeks, with the currency once breaking through the 7.00 mark against the US dollar, international funds are expected to continue purchasing renminbi assets, supporting China's real economy.