From the perspective of financial markets, higher interest rates mean less liquidity, which leads to more scarcity of strength, and more value for the dollar.
When the Fed raises interest rates, it needs to sell to recycle dollars. This process means that the amount of Treasury bonds in the market increases, the price of dollar Treasury bonds falls, and the yield on Treasury bonds starts to rise.
For the US stock market, the Fed’s interest rate increase is equal to the recovery of the dollar liquidity in the market and the increase of the cost of dollar financing, which will lead to the impact of the liquidity of US stocks, the decline of the adjustment market, the three major US stock indexes will dive.
And by the late capital flow as the dollar rises, overseas market liquidity and the backflow of the dollar will bring us stocks rebound rise, and early interest rate cut cycle flow into the stock market and push up U.S. stocks price cheap dollars and debt bubble, will be digested, the U.S. financial markets also solved the debt risk and asset bubbles, achieve a smooth transition.
From the perspective of the economic cycle, when the US economy recovers stability and full employment, the Fed will enter the interest rate hike cycle. After the interest rate hike, a large amount of capital will be attracted back to the US, which will also promote the growth of the US real economy and the expansion of production capacity. In the end, it will not only digest inflation, but also maintain the medium and long-term recovery and growth of the US real economy.
When the Fed cuts interest rates, it releases risks to the rest of the global economy. When the Fed enters the rate hike cycle, it will also have an impact on the rest of the global economy.
From the perspective of international capital flow, the interest rate hike of the Federal Reserve will lead to a large amount of capital flight from emerging economies. The funds originally flowing into emerging economies will turn to the US market in pursuit of higher interest returns and investment returns of financial assets, which will bring a huge shock to the global financial market.
Most emerging economies rely on the hegemonic system of the US dollar and support the free convertibility of the US dollar. Once the US Federal Reserve raises interest rates, a large number of capital outflows will impact the financial stability of their own countries, resulting in a shortage of liquidity.
Some economies that lack dollars and rely on overseas capital inflow and investment may even experience financial market collapse and their own continuous depreciation, which will eventually impact the real economy and bring about regional financial or economic crisis.
For China, the federal reserve to raise interest rates will also bring the impact of the international capital outflow, as well as passive, but china-us trade volume is huge, and we have 3 trillion of reserves, which holds 1 trillion U.S. debt, coupled with its own independent financial system, not make dollar convertibility, enough to deal with the dollar increases risk of capital outflows, keep the outside circulation economic stability,
Coming from the real trade level, the dollar cycle, often means that the American economy has improved, the dollar index is also strengthening, but not for emerging economies recover or weaker economic fundamentals, its currency is weaker, it for emerging economies, means that lose the competitiveness of the export trade, affect the virtuous cycle of economic and trade.
Because many emerging economies, the financial system is not perfect, the lack of liquidity management tool, in the early days of dollars flooding, domestic financial assets had a bubble rise, inflation also rose sharply, currency rise fall, a large number of accumulated financial risks and bubbles, once the federal reserve to raise interest rates, so fragile financial system and the trade volume,
It is not enough to deal with the reversal of liquidity brought by the dollar rate hike, and eventually fall into a passive predicament.
The market is expected to welcome new volatility at the end of the year, and the Fed’s decision comes with heavy data.
Please pay attention to the specific operation, the market is changing rapidly, investment needs to be cautious, the operation strategy is for reference only.
