Fed Rate Hike Fail; Capital to China, RMB Up.
The Federal Reserve has raised interest rates again, this time by 25 basis points. However, it now appears that this rate hike has failed to achieve the desired effect.
Affected by the expectation of the US dollar's depreciation, as well as the panic caused by a series of bank failures in the United States, funds are being withdrawn on a large scale from the US banking industry and the entire financial market.
We have observed that a significant amount of these funds are flowing into the Chinese market, and the Chinese yuan has risen sharply within just half a month, surpassing an increase of 1800 points.
01. Failure of the Rate Hike
In fact, the Federal Reserve's rate hike this time was very hesitant. It had initially planned to raise rates significantly by 50 basis points. However, in March, several banks suddenly encountered problems, with three banks going bankrupt one after another, casting a shadow over the Federal Reserve's rate hike.
The Federal Reserve claims that the rate hike is to control inflation, but it is evident that, from the perspective of controlling inflation, the US rate hikes have already failed.
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Despite so many rate hikes and such a large magnitude, not only has inflation not returned to the target range of 2%, but it has also led to a recession in the US economy. The most direct effect is that the US banking industry is facing a wave of bankruptcies.
So why is the Federal Reserve still stubbornly intent on raising rates? The real purpose is to suppress the exchange rates of other non-US currencies in preparation for future global harvesting.
However, from this perspective, this rate hike has also been a failure.
After the rate hike was announced, the US dollar index fell instead, indicating that the US dollar is continuously depreciating, and non-US currencies have coincidentally experienced a significant increase.02, RMB Appreciates by 1,800 Pips
Let's take the Renminbi (RMB) as an example.
On Thursday morning, the Federal Reserve announced an interest rate hike, and during the day on Thursday, the RMB experienced a significant appreciation, rising from 6.86 to a peak of 6.81. Although there was a slight pullback by the close, it still appreciated by 320 pips for the day.
If we extend our perspective over a longer period, we would notice that previously, the RMB against the US dollar had undergone a round of depreciation, approaching the 7.0 threshold once again.
However, starting from March 8th, due to the bankruptcy of banks in the United States, which led to a capital panic and a mass exodus from the US market, a significant amount of US dollars were sold off, and a considerable amount of funds were invested in RMB, causing a noticeable appreciation of the RMB's offshore exchange rate against the US dollar.
On March 8th, the RMB's exchange rate reached its lowest point at 6.99, but by yesterday, it had rebounded to 6.81. In less than half a month, the RMB appreciated by 1,800 pips.
03, Capital Flees the United States
The RMB began to appreciate on March 8th, and subsequent data also indicated that during the week of March 8th, bank deposits in the United States plummeted by $54.4 billion.
Note that this is the total amount of all bank deposits across the United States. Therefore, it is not a case of deposits moving from smaller banks to larger ones, but rather a net outflow of deposits directly from banks of all sizes in the United States.
Strategists at JPMorgan Chase also pointed out in a report that since the interest rate hikes began last year, US banks have lost $1 trillion in deposits, but half of that was lost after the Silicon Valley Bank crisis. This means that in just half a month, more than $500 billion in deposits have net outflowed from various banks in the United States.Where did the money go?
Naturally, it is necessary to avoid high-risk areas, such as the United States. Naturally, one should seek areas that are safe and offer stable returns, such as China.
04, Inflow into China
For some time now, with the expansion of wholly foreign-owned public mutual funds, foreign capital is racing against time to join the layout of China's financial market. Through methods such as transitioning from Sino-foreign joint ventures to wholly foreign-owned enterprises, or by foreign investment in domestic companies, they have made the Chinese market business one of the group's strategies, actively participating in the development of China's financial market to seek benefits.
At present, we have introduced a number of policies that are conducive to the opening up of China's financial industry to the outside world. In the future, the Chinese market will adopt a registration system and has implemented a number of supporting systems to ensure the quality of A-share listed companies.
As the world's second-largest economy, China's stock market has made foreign capital smell the huge economic potential with low risk and great opportunities. It is also this characteristic that makes China's stock market more attractive to investors compared to the United States.
In recent years, the safety and stability of the renminbi, along with the low inflation environment in the country, have made foreign capital feel more at ease and profitable.
The recent obvious net purchases of Northbound capital are the best proof.
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