Sudden Yuan Dive
Our A-shares just started to soar, and the U.S. began to stir up trouble.
Before the holiday (September 23rd - September 27th), under the stimulus of unconventional policy combinations, Chinese assets welcomed an epic surge. In just a few days, the Shanghai Composite Index rose by 12.81%, the Shenzhen Component Index rose by 17.83%, and the Hang Seng Index rose by 13%, leading the global gains. The trading volumes of the Shanghai and Shenzhen markets and Hong Kong stocks also set record highs, with market enthusiasm being rarely seen in years.
Just as our stock market entered the National Day holiday break, the U.S., however, "inopportunely" announced a set of economic data that exceeded expectations.
Last night, the U.S. Bureau of Labor Statistics announced the non-farm employment numbers for September.
The U.S. non-farm employment numbers for September increased by 254,000, with expectations of an increase of 140,000, and the previous value was an increase of 159,000.
Not only that, the latest non-farm data for September was surprisingly good, but the U.S. Bureau of Labor Statistics also revised the non-farm new employment numbers for July from 89,000 to 144,000; the non-farm new employment numbers for August were revised from 142,000 to 159,000.
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After the revision, the combined new employment numbers for July and August were 72,000 higher than before the revision.
Additionally, the unemployment rate dropped to 4.1%, decreasing by 0.1 percentage points.
The household employment survey showed an even more optimistic situation, with new employment numbers reaching 430,000. The average hourly wage increased by 0.4% month-on-month and 4% year-on-year, both of which exceeded expectations.
The signal is clear, the non-farm data that greatly exceeded expectations indicates that the U.S. unemployment rate is falling, and the U.S. economy has suddenly improved again.Just half a month ago, the relevant economic data in the United States was still indicating a risk of economic recession, and as a result, the Federal Reserve cut interest rates by 50 basis points beyond market expectations, initiating the current monetary easing policy.
It should be noted that, unless there is a significant economic crisis, the Federal Reserve's monetary policy historically rarely cuts interest rates by 50 basis points when starting a new rate-cutting cycle.
To accompany this rate cut, the economic data released by the United States, such as non-farm employment, sent a signal to the market that there is a possibility of economic recession.
It is based on the expectation of recession that the market believes the Federal Reserve will continue to loosen the monetary policy in November, with a 62.5% probability of a 25 basis point rate cut and a 37.5% probability of a 50 basis point rate cut. By December, the cumulative probability of a 50 basis point rate cut is 44.5%, a 75 basis point rate cut is 44.7%, and a 100 basis point rate cut is 10.8%.
Unexpectedly, just a few days later, after a significant increase in Chinese assets, the first economic data released by the United States could change market expectations. Strong economic data may eliminate the possibility of further rate cuts!
At least in terms of the magnitude of the rate cut, the market may be disappointed.
After the release of the non-farm data, the CME "FedWatch" showed that the probability of the Federal Reserve cutting rates by 25 basis points in November rose to 97%, while the probability of a 50 basis point rate cut was 2.5%, with traders even eliminating bets on a 50 basis point rate cut by the Federal Reserve in November.
Following the data release, overseas assets experienced significant fluctuations. The US Dollar Index surged, reaching a high of 102.6518, with an intraday gain of nearly 0.7%.
London spot gold plummeted, turning from a gain to a loss.
The most affected was the Chinese Yuan, with the offshore Yuan plunging more than 400 points in a short time, once depreciating to the psychological level of 7.1.Still, other assets withstood the pressure, and the NASDAQ Golden Dragon China Index continued its strong upward trend. The NASDAQ Golden Dragon China Index closed up by 3.05%, and the "China Dragon" ETF initially rose by more than 3%, both outperforming the broader US stock market.
We all know that this round of surge in the A-share market is driven by policy, one of which is the monetary easing. An important factor that allows us to ease monetary policy without hesitation is that the Federal Reserve will continue to cut interest rates.
Now, after five trading days of significant gains in the Chinese stock market, the United States has ulterior motives in releasing such data, and its intentions are really obvious.
Fortunately, we still have three days before the market closes, and there is enough time to digest the news. In addition, the sentiment of the A-share market surge is still present; we should be able to withstand the pressure.
That being said, the A-share market has seen a significant increase in a short period, and investors who were deeply entangled this year have also been released. However, it is still necessary to pay attention to the risk of a pullback.
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