Because, the latest series of data released in the U.S. supports the Fed's more hawkish interest rate outlook to cool inflation, the market has now priced in a rise in the Fed's terminal rate to 5.50%, which will likely open up space for a rally in the dollar, which is still at a nearly seven-week high, coupled with a spike in U.S. bond yields, which has complicated the outlook for a series of deals in the U.S. financial markets, and even more so for heavy bets traders that the Fed will raise rates to 6% have made a fortune.
The U.S. Institute for Supply Management ISM data released on March 2 showed that manufacturing factory activity began to stabilize, new orders sub-indicators also rebounded from the lowest level in two and a half years, and is considered an indicator of inflation, the price index paid jumped sharply from 44.5 in January to 51.3 in February, breaking a four-month downtrend, which indicates that inflation remains more sticky than the market expected.
After the data was released, Kashkari, who has been recognized by the market as the "king of doves" among Fed governors and president of the Minneapolis Fed, also suddenly surrendered to the hawks, saying he was open to a 50 basis point rate hike in March and was inclined to keep pushing up expectations for the end rate, even as Fed governors warned of the need to keep the rate at 2024 at that level to avoid catastrophic consequences for the U.S. of hyperinflation as occurred in the 1970s, which led to an immediate reaction from the interest rate options market.
According to the CME Fed Rate Watch tool, the peak Fed rate is now expected to soar to a range of 5.5%-5.75%, with the likelihood of a 50 basis point rate hike in March having risen from 24% a day ago to 30.6% now, and three consecutive rate hikes before June having been nailed down, more so as hopes of a rate cut in 2023 have been largely dashed.
This means that the Federal Reserve has shown its cards, will open a new round of harvesting of financial markets, issued borrowing costs will continue to soar and would rather recession than control inflation signals, in this regard, Morgan Stanley chief analyst Mike Wilson said in a report published on March 2, in the Federal Reserve continued to raise interest rates under the pressure of harvesting, the U.S. market is already in the "dead zone ", the S&P 500 may plunge 26% in a few months.
This shows that the Federal Reserve in the collapse of the U.S. financial markets, but also to end the era of cheap money needed to support the U.S. Ponzi scheme, and triggered a series of extreme financial events, but also the U.S. assets are losing credibility, and the root cause of all these crises is the Fed for the causes of high inflation "dishonest", began to helplessly The harvesting of its own people.
Data show that the Fed's harvesting behavior in addition to Japan, the United Kingdom and Europe's financial markets brought a big shock at the same time, but also is undermining the recovery of the U.S. manufacturing industry, a major blow to the earnings expectations of U.S. listed companies, more U.S. technology giants have folded, making the most serious wave of layoffs in more than a decade continues to expand, retail stores and the housing market also continues to collapse, especially the United States is losing its luster At the same time, more and more wealthy Americans have been pulling out, fleeing some of the states or cities where the U.S. could go into debt bankruptcy, and sending the number of the world's high net worth individuals migrating to the U.S. plummeting by more than 80% from 2020.
In particular, the U.S. financial markets are in a toxic stagflationary cocktail of high debt, high inflation, high interest rates and low growth, and the strong dollar triggered by the Fed's "interest rate hike wave" will eventually backfire on the U.S. economy and severely weaken U.S. debt repayment capacity, ultimately leaving the U.S. debt economy, built on a giant Ponzi debt scheme house of cards, in a precarious position. The economy is on the precarious edge of a precipice as it pays the price.
Obviously, this will undoubtedly shake the fundamental logic of U.S. economic growth, dilute the dollar's monetary dividend, weaken the dollar's ability to export inflation and harvest minting taxes, plant a debt-timed nuclear bomb on the debt-addicted U.S. economy, and push the U.S. economy into recession, which also makes dozens of major U.S. companies start preparing for a recession, as we witnessed in 2008, and it will bring great pain to Wall Street and U.S. companies will cause tremendous pain.
Meanwhile, in a market environment where the Fed is once again raising its reaping scythe to pass on the risk of high inflation and debt default, in addition to being reaping its own, a renewed strength in the dollar tends to tighten the global financial environment, reducing the willingness to take risks and weakening global trade, and will also make it more difficult for some economies that are deep in the dollar debt black hole or vulnerable to service their dollar debt, and in particular will leave Indian financial markets potentially exposed to renewed "headwinds".
Analysis shows that if two-year U.S. bond yields reach 5% to 6%, it could trigger a new plunge in India's currency, the rupee, which has depreciated by 10.19% against the U.S. dollar in 2022, the highest since 2013, data show, and despite six interest rate hikes by the RBI to rescue the decline, the rupee still fell to a new record low and became the worst-performing Asian currency .
U.S. rating agency S&P warned in a report published on March 1 that every 10 rupee drop in India's currency will cost India's import bill 800 billion rupees more, as commodity prices continue to be high, making India's trade deficit continues to expand, foreign exchange reserves have now shrunk to an 11-month low, which will further weaken India's soaring external dollar debt affordability, and triggered a stock, debt and exchange storm.
It is worth mentioning that the Indian rupee is also sounding the alarm for the currencies of nine countries, namely South Korea, Argentina, Egypt, Ghana, Lebanon, Nigeria, Pakistan and Sri Lanka, as they have the highest exposure to the foreign exchange market and investors should consider hedging against the risk of further currency depreciation, which will become even clearer in an environment where the 10-year U.S. bond yields may rise above 5% due to the spike in interest rates. Clearly.
As investors bet that the Fed will raise interest rates by more than many investors previously expected to cool inflation, the U.S. bond market has thus suffered another heavy setback, with U.S. bond yields having risen for six weeks in a row, and in recent days, there has been a spike in the trend of being sold off violently by the market.
Data show that on March 2, the indicator 10-year U.S. bond yield has exceeded 4% for the first time in four months, reflecting short-term interest rate expectations of the two-year U.S. bond yield was once touched 4.9% since 2007 high, spot gold prices are in March 2 touched the highest price in a week, as the market is betting that China, the largest gold consumer in the accelerated liquidation of U.S. debt, the physical Demand for gold is expected to increase.
The World Gold Council's latest report, released on Feb. 24, showed that China has once again emerged as the world's leading central bank gold buyer in recent months, with Chinese institutions breaking their silence for the third consecutive month after a 38-month hiatus to reveal that they bought a total of 77 tons of gold reserves, while China imported a total of 1,343 tons of gold last year, pushing imports to a near five-year high. Given that China accelerated the liquidation of U.S. debt in 2022, which accounts for about 17% of its total holdings, the actual amount of gold purchased by China could be even higher, following the pace of global central banks that are accelerating the sale of U.S. debt in exchange for gold.
Goldman Sachs further said in a report published on March 2 that since 2020, the Federal Reserve has pushed interest rates all the way to the zero value range in order to help the U.S. economy recover, creating more than $10 trillion of base dollar liquidity out of thin air and injecting it into the U.S. financial asset system, creating a huge overvalued asset, but now the Fed's move to have to take even higher interest rates is causing this to be printed It is clear that this will accelerate the rate at which some major U.S. creditors are cutting their exposure to U.S. debt and repricing U.S. debt in anticipation of a U.S. debt default, further suggesting that the role of U.S. debt in international reserve assets may no longer be as important relative to the traditional strategic asset of gold.
In this regard, veteran Wall Street prognosticator Peter Schiff further analyzed in his latest report published on March 2 that the wave of gold purchases by global official institutions is part of a new attempt to reduce dollar exposure, and that the expected debt default in the U.S. and the beginning of the collapse of the U.S. Ponzi scheme, overlaid with the risk of the U.S. using the strong and weak dollar cycle to harvest wealth, is likely to accelerate the global central banks to continue to accelerate the liquidation of U.S. debt assets The process of liquidating U.S. debt assets is likely to accelerate, and combined with historical experience, at least $2 trillion in international funds will be withdrawn from the U.S. market.
This includes U.S. Treasuries, the U.S. housing market and other iconic dollar assets, while at the same time, a large number of agile international investors are also moving their eyes eastward to the major Asian markets with higher returns, for example, as of March 1 within three trading days, the yuan continued to rally, up three days in a row, the yuan in the context of the renewed strength of the dollar index, against the dollar is still up more than 1% is the latest example