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The most thrilling financial events this week are nothing more than the accelerated depreciation of the RMB and the US dollar index hit a new high in 13 years.
Last night and this morning, the US dollar index once rose to 101.54 points. The above chart is the monthly K-line chart of the US dollar index. We can see that its high points have surpassed the first two highs formed by the "Feder terminates QE" and "Feder's first interest rate hike."
Generally speaking, when the US dollar index exceeds 100, it means that the US dollar has entered a super state, which is likely to trigger a chain reaction in the financial market. For example, some economies with fragile economies will "death suddenly" due to capital outflows.
Before the article is expanded, let me introduce what the "USD Index" is.
This index was born in 1985 and was first launched by the New York Cotton Exchange. Later, after mergers and acquisitions between exchanges, the US dollar index is now released by the "Intercontinental Exchange". The calculation principle of the US dollar index is: based on the trade settlement volume between major countries around the world and the United States, the overall strength and weakness of the US dollar are calculated in a weighted manner, and 100 points are used as the dividing line of strength and weakness.
Currently, there are 6 currencies directly linked to the US dollar index, which are: euro, yen, pound, Canadian dollar, Swedish kroner , and Swiss franc. Among them, the euro accounted for 57.6%, the yen was 13.6%, and the pound was 11.9%.
The above is the trend chart of the US dollar index since 1967 provided by Goldman Sachs research report. The highest point of the US dollar index was 164.72, which was set in February 1985; the lowest point was 70.68, which was set in March 2008.
The most terrifying US dollar index record (164.72 points) was created by Paul Volker. He was the chairman of the Federal Reserve before Greenspan. He has experienced two presidents: Carter and Reagan. Paul Volker took office in 1979. The United States had just experienced severe inflation and the US dollar index was at a low point.
Then, Volker slapped in curbing inflation, controlled the issuance of currency , continued to raise interest rates, and brought the US dollar back to the strong era. At that time, China was in the early stages of reform and opening up, with almost zero foreign exchange reserves and a large amount of US dollars were needed. These factors intertwined and finally pushed the US dollar index to a high of 164.72 points.
Everything will be reversed. Paul Volker's policy of strong dollar finally couldn't continue. The United States experienced a serious trade deficit and fiscal deficit. So in September 1985, the United States signed the " Square Agreement " with West Germany, Japan, France and the United Kingdom to let the US dollar "fly into the sky" take the slide back to the world. The second high of the
USD index was set in 2001. The background of that bull market in the US dollar was the bubble of online stocks, which attracted global hot money to flow into the US gold rush. As for the lowest point of the US dollar index, it occurred in March 2008, when the subprime mortgage crisis had already broken out.
shows that the strength of the US dollar index is a microcosm of the US economy, and is significantly affected by monetary and fiscal policies. When the US economy improves, the US dollar index becomes strong, and vice versa. When the US dollar enters a cycle of interest rate hikes, the index becomes strong, and vice versa.
Since the US dollar is the world currency, the fluctuations in the US dollar index often bring about the same impact as the tides of the sea. When the index is abnormal, a tsunami will definitely occur. Sometimes, even a shocking super earthquake is enough to collapse some small countries, some investment institutions go bankrupt instantly, and some civilians' dreams of studying abroad return to zero overnight.
The reason why the US dollar index hit a 13-year high when it was "the second interest rate hike" (generally speaking, the vibration effect of interest rate hikes is decreasing), is an important factor that is Trump .
The "second rate hike" in the Trump era seems to have a greater influence than the "first rate hike" in the Obama era. The reason is that Trump's new policy is about to be introduced.In this new policy, there is not only the content of "the return of American manufacturing", but also the stimulus policy of "enterprise cash return", as well as the American version of "big infrastructure" and "four trillions".
You should know that Apple alone has $216 billion in cash overseas; all American companies hoarding cash overseas is estimated to exceed $2.5 trillion. The reason why this money is unwilling to return to the United States is mainly to avoid taxes (US corporate income tax is as high as 35%).
In other words, the factors that stimulate funds to flow back to the United States have changed from "rate hike + manufacturing return" to "rate hike + manufacturing return + corporate cash return + expansion fiscal policy." Due to Trump's election, two factors instantly became four factors!
The picture above is a simplified "Merry Lynch Clock" diagram, Trump's coming to power pushes the clock's pointer from the "6 o'clock to 9 o'clock" area to the "9 o'clock to 12 o'clock" area. Therefore, the global bond market has generally fallen in the past week, and bond yields have rebounded across the board.
In other words, the market generally expects that the combined cycle of Trump and the US dollar interest rate hike will lead to the accelerated return of the US dollar to the United States, and promote the rotation of asset allocation, and the end of the bond bull market. At the same time, emerging economies may revaluate their asset prices again because they are facing the loss of hot money.
If the revaluation in the past one or two years is "Obama price", it now needs to be converted to "Trump price". Under the Trump price system, US dollar assets will be more expensive, and the asset prices in emerging economies will be cheaper. The recent decline in Hong Kong and Chinese stocks listed in the US means this.
This week, not only did the RMB depreciate at an accelerated pace, but major currencies such as the euro and the Japanese yen are also depreciating against the US dollar. The currencies of Vietnam and Indonesia seem to show signs that they are "can't stand it". In addition, the price of gold is under a new round of pressure.
For China, the future impact of this shock wave includes: management is more sensitive to asset bubbles, stricter prevention of financial risks, and tighter foreign exchange controls.
[This is an original article by Liu Xiaobo. Please indicate the author's name and indicate it from Tiantian Shuoqian WeChat when reprinting, otherwise legal responsibility will be pursued. 】
