While ongoing rate hikes have continued to push the dollar higher, much speculation remains as to the Fed’s future moves (1), with Fed funds futures indicating a split almost equally between doves and hawks, as traders have priced in a 55% expectation of further rates increase in September (2) although the likelihood of it having an effect on core inflation appears low (3). A shift away from further rates hiking would likely send the dollar crashing (4). However, whether hawkish or dovish (5), the general consensus (6) of the overall economic outlook (7) appears to be leaning bearish (8).
Hedge fund managers are bracing their clients for troublesome times ahead (9), and as the stock bubble has yet to fully pop (10), equities, which have likely not yet bottomed (11), are expected to resume their downward slide (12).
As the inflation rate in Europe hit a record-high, the ECB is being steered towards a 50-75 basis point rates hike (13).
The UK is also feeling the pressure of mounting inflation, prompting anticipations of a 50 basis point increase which, if implemented, would be the highest rate increase Britain has seen in 27 years (14).
Whether or not rate hikes will play out depends mostly on the objective of the policy makers. If they plan to heal the current system, then further rate hikes seem reasonable, albeit, the price to pay would be a collapse of asset prices, and massive defaults. Essentially, crushing economic activities to reset the bloated system. On the other hand, if they decide to further push the agenda of a state-controlled system with arbitrary wealth and resource distribution, then rates should remain stable, tending downwards. Given the policy doctrine of the last decade, a shift towards healing the system seems less likely than maintaining the status quo.
In upside market news, an audit agreement forged between the SCE and Beijing has prompted a surge in US-listed Chinese stocks, sending bullish ripples into China’s equity market (15).
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