"Dollar Index Plunges, Nasdaq Dives 2.5%, but China Data Signals Different A-Share Outlook"

In recent days, various data from the United States have stirred up the global financial markets. The latest Consumer Price Index (CPI) has reached 7.0, hitting a 40-year high. Major investment banks are predicting that there will be three or even four interest rate hikes this year, with a rate hike in March becoming a foregone conclusion.

Under such expectations, on January 11th, the US dollar index suddenly dropped from 96 to 94, which is completely contrary to everyone's experience. Normally, interest rate hikes would push the currency to appreciate, but the US dollar depreciated against six major currencies.

And just last night, after three consecutive days of rising, the Nasdaq index suddenly fell by 2.5%. A single day's decline wiped out the gains of the past three days.

Is the US economic data really good? Will the A-share market be affected?

01

I have always believed that since the pandemic in 2020, China's economic trend has been half a year ahead of the United States, and our trend will be replicated in the United States in a very similar way.

The current situation in the United States is quite similar to that in China half a year ago. The main reason why the Federal Reserve has accelerated the scale of debt reduction and repeatedly indicated that it will raise interest rates this year is due to the two data points the Federal Reserve is focused on. The first is inflation data, and the second is employment data.

The latest CPI data has reached 7.0, which is a new high in 40 years. Over the past 40 years, even when inflation in the United States was relatively high, it rarely exceeded 3. The last time the inflation data exceeded 7 was in the 1970s, when two oil crises occurred, and the economy was in a state of stagflation.

In other words, there is no similar historical data to refer to regarding where the current inflation in the United States will lead the US economy. This makes the Federal Reserve very worried.

The second data point is employment data. The employment data for the first two quarters was very good, indicating strong economic recovery momentum, which is also the source of confidence for the United States to start tightening monetary policy.This situation has actually occurred in our country much earlier, due to earlier monetary stimulus and more comprehensive epidemic prevention policies, our economic recovery started earlier.

Looking back at the first half of last year, various economic data were also very impressive, especially when compared with the performance during the same period last year when the epidemic was raging, the year-on-year growth was quite significant. At that time, the Producer Price Index (PPI) was also increasing, indicating a certain level of inflation risk.

Therefore, I have reason to believe that the current situation in the United States has already been experienced by China.

As a result, I estimate that the U.S. economy will face the same difficulties that our country has experienced in the past two to three months within half a year. I anticipate that the current inflation in the United States will decline, and more importantly, the economic data that currently look quite good should gradually deteriorate after the second quarter of this year.

Under such circumstances, the Federal Reserve's desire to raise interest rates may become increasingly difficult.

02

The current poor performance of the Nasdaq Index is mainly due to concerns about interest rate hikes.

Inflation is a reflection of rising prices, which are so-called price increases that will be reflected in consumer goods, construction material costs, etc., and the corresponding listed companies will increase their operating income and profits due to rising prices. Therefore, in the early stages of inflation, it is actually good news for such listed companies.

However, the expectation of interest rate hikes brought about by inflation is a valuation killer for high-growth companies. Hence, the Nasdaq Index is more affected. In the past few years, the U.S. stock market has mainly been driven by the Nasdaq, and its valuation has already been quite high. Under the current expectation of interest rate hikes, these types of stocks naturally fall more severely.

During the stock market downturn after 2000, the Nasdaq's decline was also quite severe, which happened to coincide with the Federal Reserve's interest rate reduction cycle. Of course, another reason was the bursting of the tech stock bubble.However, in the previous round of interest rate hikes, from 2015 to 2018, multiple increases only caused fluctuations in the Nasdaq Index at the beginning, with neither the duration nor the magnitude of the decline being significant. Subsequently, it was repaired and continued the bull market that has lasted for more than a decade.

Now it seems that the impact of this round of interest rate hike expectations on Nasdaq may also be similar. Even if there is a decline, it will not last too long, making it more suitable for friends who invest in corresponding index funds through a fixed investment plan.

On the other hand, in the past few days, the Hang Seng Technology Index, which had just risen, has fallen again due to the influence of Nasdaq. This will affect many friends who have invested in Hong Kong stock funds.

03

If the United States raises interest rates, it will definitely have a certain impact on A-shares, but this is only an external influence.

In the last round, we have analyzed that there are still many uncertain factors in the United States' interest rate hikes, and even if there is a hike, it will be offset by our monetary policy.

In the second half of last year, we carried out two reserve requirement ratio cuts, and in the first half of this year, there may be another comprehensive or targeted reserve requirement ratio cut. On the other hand, we cannot rule out the possibility of a rate cut, all of which are the most important prerequisites for stable growth.

Therefore, during this period, our economic situation is different from that of the United States, and the monetary policy we adopt is also different. A-shares are more influenced by their own policies.

The latest CPI data has turned downward again, and the PPI has declined for two consecutive months. The shadow of inflation may gradually dissipate.

Moreover, the growth rate of M2 has returned to 9.0, and there is even a chance to return to above 10. The liquidity in the future market will also be more relaxed.The PMI index has returned to above 50 for two consecutive months, indicating that the economy is in a state of expansion.

These pieces of data all suggest that the economic downturn risks that have been looming over A-shares recently are being effectively controlled. Therefore, there is reason to believe that in the coming period, A-shares will carve out an independent trend.