To Hike or Not to Hike, That is the Question

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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References

1. "The Market Is Convinced That Powell Will Cut Rates At The First Sign Of Trouble... And It's Correct"

2. Dollar driven to five-week high by Fed rate hike forecasts

3. Top economist Mohamed El-Erian says inflation ‘will be sticky’ and utters the words nobody wants to hear: ‘Entrenched’ and ‘broad-based’

4. The dollar could crash from 20-year highs if the Fed pauses rate hikes in a weak economy, says top economist

5. ‘Unhinged’: Prominent Economist Nouriel Roubini Has Two Predictions For The Economy, And Both Are Terrible

6. An Autumn With Epic Collapses of Stocks, Debt, Currencies, Much Higher Inflation – Leading To Poverty & Social Unrest

7. JPMorgan CEO Jamie Dimon told wealthy clients there's a chance the US is heading into 'something worse' than a recession, report says

8. "The Only Way We Are Getting Big Rate Cuts Next Year Is Alongside An Economic Collapse The Pushes Us Off A Cliff"

9. CIO Of World's Largest Hedge Fund Warns "You're Not Going To Be Able To Avoid" Pain From Fed's Actions

10. Jeremy Grantham Warns ‘Super Bubble’ in Stocks Has Yet to Burst

11. The stock market is in for another bottom by year-end

12. Stocks, Bonds, Real Estate & The Dollar Are About To Get "Vaporized"

13. Euro-Zone Inflation Hits Record as ECB Hawks Push Jumbo Hike

14. Bank of England Set to Accelerate Its Inflation Fight: Eco Week

15. Chinese ADRs Spike After SEC Reaches Audit Agreement With Beijing