Federal Reserve must raise the interest rates or the recessions and deflation will come.
The low inflation is a signal of economic problems and related to weak economy. Global inflation rates have been low since the financial crisis of 2008. The too-low inflation makes unemployment high and makes the consumer confidence low. People and business may be less willing to make investment and spend on consumption, and then it may bring the economic to recessions and deflation.
Even though Donald Trump keeps inciting trade wars with Canada, EU and China, it has not sparked any increase of inflation yet. Economic history has shown that economies perform best with slightly higher levels of inflation, such as 2-3%. If the inflation too low, the companies may not have leeway to raise prices and that may force them to cut costs or cut back on hiring. And low inflation often come along with lower wages. Lower wages may cause consumers become less motivated to spend.
So I am looking forward to two more hikes in 2018.
The Yuen has fallen greater than expected. It seems that China’s government is facing a huge price in fighting a defensive war. Feeble yuen affects stock markets, commodity prices and property bubbles in both Hong Kong and China. And due to the ‘one country, two systems’, Hong Kong is in the same boat. The fleeing and the devaluation of RMB not just have impacts on Hong Kong-owned factories in China, but also the Hong Kong property prices.
The US diplomatic relations with her traditional allies such as EU, Canada and EU are changing. There is no doubt that the trade policy is isolating US from her traditional allies. Moreover, the US-Russia summit which held on 16 July just increases her allies’ concerns that traditional allies are not permanent allies.
Obviously, the Trump-Kim summit represented Trump’s most significant victory during his presidency. And his also tweeted that “There hasn’t been a missile or rocket fired in 9 months in North Korea, there have been no nuclear tests and we got back out hostages.” However, Trump was facing a bipartisan fury after the Trump-Putin Summit and the media just denounced him as “shameful” and “disgraceful”. While many US politicians and US intelligence community believe that Russia really meddled in the 2016 election, Trump just called “President Putin was very, very strong”. There is no one can explain what Trump-Putin Summit means, not even the US government. I am very curious about what these two “HISTORIC” summit mean. Do they mean US is seeking structural changes on diplomatic relations? Is Trump going to set up a strategic alliance with Russia and North Korea to counterbalance China?
We are stuck in the trade war and no one seems to foresee any clear path. Actually, before the US-China trade war was on everyone’s mind, the biggest fear facing the global investors should be rising interest rates.
Federal Reserve Chairman Jerome Powell emphasised that the economy is doing very well in June 2018. Some say that the Fed is going to act because of the US job market and inflation instead of the political news. In other words, if the trade wars have no impact on the US job market and inflation, the Fed will keep rising interest rates and two more hikes in 2018 are coming. Furthermore, the Fed has so many reasons to keep rising interest rates gradually. And I believe that the Fed plans to keep hiking even though the risks of trade war mount.
We are going to see that rising interest rates and trade wars will happen at the same time! Are you well prepared for that?
The US president Donald Trump just announced that he is preparing another round of tariffs on Chinese goods which worth USD 200 billion. China’s Commerce Ministry responded that the upcoming round tariffs were unacceptable and warned that China would strike back against US with countermeasures. However, China has not yet provided any details about the tit for tat actions till now.
What Trump is going to do as the US president is spending $10 to make China losing $8. It is not just a trade war. It is a war! The US president just focuses on making China loses money. So, you should never think you are clever enough to gain in stock markets right now. Keep Cash!
Is it a time to get into or out of the stock market?
After the US-China trade war escalated last Friday, the stock markets in US and China remain silent. And some of my friends are just curious about is it a time to get into the stock markets again. In my opinion, it is so difficult to predict how politics factors affect the stock markets and economies.
While the stocks markets have a lack of information and directions, individual investors should be careful. As China’s economy is slowing and fewer investments opportunities, I do not see any reason for buying stocks in China. Actually, we should reallocate our investments assets instead of putting too many eggs in one basket.
Stock markets in Hong Kong and China are still shuffling today. Individual investors should take a wait-and-see approach instead of buying more stocks.
If the stock prices keep going down, the bubbles of the real estate markets in China and Hong Kong will burst. The real estate prices are unaffordable for many people in China and Hong Kong for so long. For users, it is not a perfect time to buy flats with mortgage loans this year. Furthermore, if the bearish markets eventually happens in China, that will be the first time for people in China to face financial crisis since the reform and opening-up policy in 1978. Will China’s government have enough experiences to tackle the economic bubbles and collapse? China’s government is considering RMB devaluation to fight against the US tariffs. However, the officers may need to consider the impacts of monetary policy on the baby boomers retirements very seriously. If the assets in China are forced to devalue, that will become a big issue for social stability in China.