The End of the Carnival, The Global Super Inflation: The Fuse of the Stock Market and the Property Market Has Been Ignited


Translation and Commentary by: Thomson

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Various market signals show that the global economic situation is not optimistic, and inflation has just begun. However, the Himalaya Exchange and Himalaya Coin have brought hope to people’s wealth appreciation and preservation. Himalaya Coin’s achievements stem from people’s firm belief in the development of great goals.

Translation of the original article:

On November 4, the day when Federal Reserve System (Fed) negotiated interest rates is destined to go down in history. On this day, tapering was officially announced that the unprecedented and big release without a bottom line caused by the epidemic has finally reached an inflection point. 

However, the financial market did not care and continued to become a mainstream rhythm. After the announcement of the resolution, U.S. stocks jumped, and the three major indexes once again set record highs. However, the US dollar index, which was close to a high for more than two weeks, plunged and quickly fell below the 94 mark. Of course, the British pound fell sharply against the U.S. dollar because the anticipated interest rate hike in the United Kingdom did not materialize. The dollar index is back above 94. On November 10, the 10-year U.S. Treasury yield once rose again to 1.6% in intraday trading, while oil and gold prices plummeted.

Although the financial market’s attitude towards tapering is rather messy. Some even completely contrary to the expectations of many traders. However, the overall performance was unremarkable, which is related to the Fed’s previous full communication with the market.

Regarding the reduction of debt purchases. The Federal Reserve said it will reduce its monthly purchases of US Treasury bonds by US$10 billion and US$5 billion in Mortgage-Backed Security (MBS) from November. If the economic outlook changes, then make adjustments to the pace of purchases. According to the Fed’s monthly reduction of 15 billion, it will be completed in June next year. But pay attention to the keyword “changes in the economic outlook”, which means that the Fed can accelerate (or slow down, with very little probability) the process of shrinking. The Fed simply does not give certain expectations of market consistency. This means that if inflation continues to soar, speed up the rate of reduction, and if economic vitality declines, slow down the rate of reduction.

However, the process of shrinking at most eight months is obviously too fast. In contrast, it took 10 months for the Fed to gradually end the tapering process in 2013. Nine out of 10 accidents were due to speeding. Such a rapid reduction is not good for the current bubble financial market. Of course, this may be forced, because the inflation problem is getting more and more serious.

Regarding inflation, Powell still believes that the rise in inflation is temporary, and that inflation should fall in the second or third quarter of next year. But the Fed seems to lack confidence in its temporary views. The “inflation rise” in the statement mainly reflects temporary factors. Inflation should fall in the second or third quarter of next year, and it is estimated that the Fed will be discouraged by that time. All Americans know that prices in the United States have soared, and the people feel at least about 15% inflation. But Powell insisted that inflation is temporary. This may be disregarding the life and death of the U.S. economy and ignoring the trend of hyperinflation. He continues to delay shrinking to build his own political achievements and pave the way for his re-election. 

Regarding interest rate hikes, Powell said that it was not the time to raise benchmark interest rates now. The timing of reducing debt purchases has no direct signal significance for interest rate hikes. However, market traders do not trust the Fed. They do not believe that Powell’s nonsense about inflation is temporary. After the resolution of the interest rate meeting was announced, the US federal funds rate futures showed that the possibility of the Fed raising interest rates in July 2022 is 90%. Traders expect the Fed to raise interest rates twice before December 2022. The CME Fed Observation Tool also shows that current traders believe that the probability of the Fed raising interest rates for the first time in June next year has reached more than 67%. The second interest rate hike will occur in September next year, with a probability of 51%. The probability of the third interest rate hike in December 2022 is also more than 50%. In addition, data shows that in the past week, the probability that the market will raise interest rates by the Fed in June next year has risen to nearly 90%. This is more than a year ahead of the expected interest rate hike in the past two interest rate meetings.

For tapering interest rate hike, the only comparison is the 2013-2014 case. That time, after tapering ended, it took a full two years before the interest rate hike cycle finally started. This time, the market directly bet on a rate hike from June to July, which is obviously much faster than the previous time.

However, the shrinking of the balance sheet eight years ago was a period of strong economic growth in the United States. At that time there was capital to shrink the balance sheet. But this time, after the effects of the US stimulus passed, the economy began to decline and was even on the verge of recession.

At this time, the shrinking of the balance sheet is different from the situation back then, and it will hit the economy even more.

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Editor: Mu Qian

Disclaimer: This article only represents the author’s view. Gnews is not responsible for any legal risks.

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