Although factors such as the acceleration of U.S. recession expectations, University of Michigan consumer confidence index hitting record lows and falling inflation expectations may reduce the urgency of the Federal Reserve aggressive interest rate hikes , according to CME "Fed Watch" According to data released on June 25, the probability that the Federal Reserve will raise interest rates by 75 basis points for the second consecutive month in July is still as high as 98.7%.
In the past three months, the Federal Reserve has raised interest rates by a total of 150 basis points three times, including a drastic 75 basis point hike to combat inflation that is at a record high in 40 years. Federal Reserve Chairman Powell attended the meeting on June 22 The hearing continued to send out the strongest signal of firm and substantial interest rate hikes to reduce inflation. However, Wall Street economists said that the factors that drive higher inflation due to soaring energy and food prices are beyond the Fed's control.
You must know that when inflation continues to be at a 40-year high and hits new highs repeatedly, it actually hedges the cost of U.S. debt. However, when the Federal Reserve has to significantly raise interest rates to fight inflation to restore its credibility, the side effect is that it is currently weighing on the U.S. debt. The debt crisis will come early and may trigger an economic recession, which will actually make it quickly lose the ability to save its ever-expanding debt.
Because as interest rates rise, it will restrict consumption levels and productivity, and corporate profits will decline, causing the U.S. finance to lose momentum for growth. At the same time, the cost of debt interest paid by the United States will increase rapidly, so this is This explains why the Federal Reserve has been insisting that inflation is temporary last year, and this is currently making it difficult for the Federal Reserve to control inflation and tighten monetary policy. So, what should the Federal Reserve do at this time?
The answer is obvious. The Fed will covertly pass on the risks of high inflation and debt. Fed Governor Waller’s speech on June 22 provided us with a footnote. He said, “We do not consider the spillover effects on other countries when formulating policies.” This is What does it mean for global markets? The recent sharp decline in the Vietnam market has meant that the accumulation effect of this round of dollar tightening cycle on the market has begun.
Data cited by the US media CNBC on June 23 showed that as of June 21, Vietnam’s VN30 index, known as the Internet celebrity stock market, had fallen nearly 22% from this year’s high, reversing the rising trend of the previous two years.
According to a report released by VinaCapital on June 24, despite the bright spots in Vietnam’s economy, Vietnam’s stock market price is still very low, with a forward price-to-earnings ratio of 11.5 times. This has caused the VN index to rebound in shock in the past two weeks, but due to the sell-off Due to the strong pressure, international investments with keen sense of smell are quietly withdrawing from Vietnam's financial market and will not return again. Analysts believe that the market has not yet bottomed out to prevent further losses after Vietnam's VN index shrank significantly.
Data shows that Vietnam’s financial market is in an unpredictable period. Since the plunge began in early April this year, foreign investors have sold a total of 869 trillion VND financial securities assets, which is almost 3.5 times that of the same period in 2021. . According to a report by the Vietnam Foreign Investment Authority on June 6, investment funds invested by Vietnamese companies in foreign companies also plummeted by 38% to US$340 million in the first five months of this year.
Immediately afterwards, the research organization FocusEconomics stated in an updated report published on June 24 that although Vietnam’s economic data has achieved growth for more than a decade and has even been called the Asian economic miracle, Vietnam has relied on accumulating risky loans and foreign debt. To expand economic growth, this also makes private credit growth significantly exceed GDP growth.
The agency believes that under the intertwining of multiple economic pressures such as its own high inflation, high energy prices and high local manufacturing costs, in order to pass on its own debt and inflation risks, the United States has begun the process of harvesting the Vietnamese economy. The latest news is reflecting this analyze.
We have noticed that the U.S. Treasury Department has included Vietnam in the currency monitoring list on June 11, and in December last year Vietnam was identified by the United States as a currency manipulator. This means that the United States has once again targeted Vietnam. Butcher's knife, when the Federal Reserve starts to aggressively raise interest rates and shrink its balance sheet, the above factors, together with Vietnam's rapidly rising corporate labor costs, land costs, and private debt burdens, will inevitably affect Vietnam's already fragile The fiscal revenue and international account balance of payments are in balance. If the US dollar debt trap cannot be solved, the economy may face the risk of recession in the future.
In fact, under the intertwining economic pressures of high inflation, rising energy prices and high local manufacturing costs, the United States has been harvesting Vietnam's economic and financial debt markets in recent years in order to pass on its own debt and inflation risks.
The world said in its latest report in May that as Vietnam’s economy may approach the country’s 67% debt ratio limit of GDP by the end of 2022, it ranked the country as the country in Southeast Asia that most needs to consolidate its finances.
analysis believes that Vietnam has been immersed in the US dollar debt trap for many years, and some people have even conducted transactions with Wall Street interest groups. For example, most of the profits in Vietnamese factories are in the hands of foreign manufacturers such as Europe and the United States.
This means that once there is a problem with the macro environment of the global economy or Vietnam's domestic economy, Vietnam will exponentially amplify the impact of the external environment. Reuters analysts also further stated in a report published on June 21 It pointed out that Vietnam, which was once known as the economic miracle, may become a victim. Based on this, according to the analysis of the foreign media, Vietnam's economy may decline back to its original shape, and there is a risk of recession for 21 years.
Immediately afterwards, IMF warned Vietnam to pay attention to inflation and financial risks in a report published a week ago. For example, increases in U.S. dollar financing interest rates, difficulties in the supply chain of raw materials and commodities, sharp increases in oil prices and shipping costs, and conflicts between Russia and Ukraine may have a negative impact on Vietnam's economy. The pace of recovery and the sharp rise in inflation will have a far-reaching impact on financial markets.
According to the warning of Vietnam’s Minister of Planning and Investment, although Vietnam has labor cost, tax and location dividend advantages, if Vietnam’s manufacturing cannot catch up with Industry 4.0, then the real manufacturing gap with other countries will become increasingly large. This also shows that Vietnam can no longer avoid being harvested by US dollar capital.
However, while some fragile markets are facing the withdrawal of international funds, the U.S. financial market may also encounter the same situation. Some international funds with a keen sense of smell will continue to withdraw from the U.S. market and shift to higher-yield and more stable ones. market. (End)
