妙脆角

每日分享全球宏观分析

10Following

67followers

Feed

The real alarm bell has sounded! Last night was Black Wednesday, with a perfect storm hitting the market in U.S. Treasuries. Three major black swans flew out simultaneously: U.S. stocks, U.S. Treasuries, and gold all plunged sharply, causing a global capital market crash. So what exactly happened yesterday? There was a hidden red light that most likely everyone overlooked. First, the U.S.-Iran negotiations ended without results, and oil prices once again rose above 90. The second black swan was the U.S. September PMI index released yesterday, which far exceeded market expectations, showing a hot U.S. economy and inflation. The third was a hawkish statement from Fed Governor Barr, who expressed support for further rate hikes to suppress inflation. After these three black swans, the probability of a U.S. rate hike in October rose above 70%, the five-year Treasury yield surpassed 5%, and the ten-year Treasury yield reached 5.128%, the highest since the 2008 subprime crisis, shaking global financial markets. Now let me analyze which of these three black swans is truly significant and which are just scare tactics or passing winds. First, I believe the least worrisome is Fed Governor Barr’s statement. He is naturally one of the more hawkish members of the Fed and voted for a rate hike in the recent vote. His remarks are mainly to guide market expectations and keep inflation expectations in check. His stance represents only himself, not the majority of Fed members, and his single vote cannot change the overall situation. The third factor, oil prices, is truly worth your attention. The global financial market’s switch is clear: whenever oil prices rise during the day, U.S. stocks and Treasuries fall together in the night session, and the next day China’s A-shares also suffer. But if oil prices fall, both stocks and gold tend to rise together. This is because oil is not only the most important raw material in the global industrial manufacturing system, but it also connects inflation across countries, which in turn influences whether countries raise or lower interest rates, ultimately determining global capital costs and stock market trends. Currently, oil prices are fluctuating between 90 and 100, making it difficult to reach a short-term conclusion, so the market effectively has a persistent red light here. What really surprised the market last night was the just-released U.S. September PMI index. The composite PMI reached 58.4, the highest since 2022. Looking at the three most important subcomponents: the orders sub-index far exceeded expectations, hitting a new high for 2022; the employment sub-index showed very strong hiring but a shortage of workers; and the prices sub-index indicated upstream raw materials continue to rise. Together, these depict a hot U.S. economy with labor shortages and rising wages, likely passing upstream and wage inflation downstream. This perfectly aligns with Fed Chair Powell’s mention at the last FOMC meeting of a "prosperity-driven" rate hike, meaning the U.S. economy, led by AI, is overheating rather than cooling off, requiring rate hikes to stabilize it. Therefore, this unexpectedly high PMI index is the ultimate reason the probability of an October rate hike rose to 70% last night. However, strong U.S. economic growth has both downsides and upsides: it will boost corporate earnings and support U.S. stocks. So for the stock market, it is a short-term negative but could become a long-term positive after earnings reports. Thus, this PMI index is only a yellow light. But I want to alert everyone to a hidden red light that most likely everyone has ignored, which is the most important reason. That is the MOVE index (Merrill Lynch Option Volatility Estimate Index), which measures volatility in the U.S. bond market. I have discussed this in previous videos. The MOVE index truly represents the panic level in the U.S. bond market. Although Treasury yields have been rising, the MOVE index has stayed below 80, indicating bond investors are not frantically selling Treasuries but merely repricing Fed rate hike expectations in an orderly market. But starting last night, everything changed. The MOVE index jumped from 78.5 the day before to 95.5 last night, a 21% increase, approaching the critical 100 level. Historically, before financial market panics or crises, the MOVE index spikes sharply. For example, during the 2020 pandemic, the MOVE index surged from 80 to 120, and a week later U.S. stocks plunged. Therefore, the MOVE index can be used to gauge U.S. financial market panic: below 80 indicates a healthy market; 80-100 means the market is becoming tense; 100-120 signals deep panic; and above 120 likely signals an impending crisis. We have now moved from normal to tense. Tonight we will see if it breaks the 100 threshold. I will continue to monitor this indicator, which will negatively impact global financial markets, including stocks, forex, gold, and commodities. Everyone must pay attention to risk management. The Mid-Autumn Festival and National Day holidays are approaching. Overseas markets will remain open during this period, so I recommend carefully managing your positions. I will bring you more analysis. Click follow to navigate through the rate cut cycle with me. The above is my personal opinion and does not constitute investment advice. Please be aware of risks.

Everything is rising together, and the Middle East card is back in our hands U.S. stocks, U.S. bonds, the RMB, and commodities have almost all strengthened simultaneously, creating a scenario where everything is rising together. Have you noticed? At the beginning of September, the Houthi forces suddenly struck hard, cutting off one of the Middle East's oil export routes again, causing global oil prices to surge above $100. At this time, the U.S. was dealing with high inflation, high interest rates, high Treasury yields, and the midterm election expectations of the Trump administration steadily declining—all of which were thrown into chaos by the oil price surge. We see that the other side is out of options; even U.S. Treasury Secretary Janet Yellen unusually called on us at the G20, hoping we would step in to mediate the U.S.-Iran Middle East issue. Subsequently, we saw Iran send high-level officials to visit China, and suddenly the situation significantly cooled this week. Iran is willing to return to the negotiating table, the Houthis are willing to negotiate a ceasefire, and oil prices quickly dropped back to around $90. So this time, regarding the Middle East geopolitical conflict, besides stabilizing the Middle East situation for its ally Israel, the U.S. originally planned to trigger a global energy crisis to strategically pressure the world's largest single oil buyer—us—and to play this card for the upcoming meeting. But their plan completely failed. U.S. oil prices and inflation remain high, but on our side, everything is very stable. Since the second quarter, China’s daily crude oil imports have been 8.1 million barrels, a direct 32% cut from the first quarter. In May and June, imports fell below 8 million barrels, the lowest since 2016. Why have we suddenly become less dependent on imported crude oil? First, we have always maintained a strategic and commercial energy stockpile system that has been built over 20 years, releasing supplies into the market to stabilize domestic crude oil supply and prices. Second, we have long opened several strategic overland pipelines with Russia, Kazakhstan, and Myanmar, bypassing the Strait of Hormuz. Third, we have been pushing hard on clean energy; our clean energy construction has already surpassed traditional energy construction. In the first half of this year, the crude oil saved daily by China’s electric vehicles alone was 1.4 million barrels, nearly equivalent to the UK's half-year crude oil consumption. So, with these three points combined, the oil card has shifted from the U.S. back into our hands. Coupled with high oil prices and high inflation, this is actually the biggest headache for the U.S. midterm elections, and we have solidly taken the upper hand with this card. The above is only a personal opinion and does not constitute investment advice. Please be aware of risks.

Global government bond yields are soaring—Is China's low interest rate a blessing or a curse? Recently, government bond yields worldwide have been surging. The UK’s 30-year government bond yield is close to 6%, Japan’s has surpassed 3%, and the US 10-year government bond yield has just broken 5%. It can be said that the world is experiencing a government bond yield crisis not seen in 30 years. Many people are asking, what is China’s government bond yield? Our 10-year government bond yield is 1.68%, at a historic low and still declining. Many think that while overseas governments and companies are borrowing at increasingly high costs, we are getting cheaper—does that mean we are winning big? Actually, it’s not that simple. Why does our government bond yield remain low? Three reasons combined. First, our deposit interest rates have been falling because our money supply has been continuously increasing. China’s M2 money supply accounts for nearly 20% of the global total. Twenty years ago, it was about 5%. With the global flood of liquidity during the pandemic, everyone’s money supply has risen. When money supply increases but there are no good investment opportunities, funds settle in deposits, causing deposit interest rates to gradually decline. Second, corporate financing demand remains weak. This is evident from the latest social financing data showing that the growth rate of corporate loans is at a recent low. Third, overall macro liquidity is still supported by the central bank. To ensure people have liquid funds, our central bank continues to backstop the financial market. Therefore, both bond and stock markets have relatively abundant liquidity. This mismatch between limited government bond supply and strong demand pushes bond yields downward. On one side, government bond yields in Europe, the US, and Japan have hit ceilings; on the other, China’s yields keep falling. Which is better or worse? Both have their pros and cons. First, in Europe and the US, government bond yields have reached historic highs, which is clearly unfavorable for corporate borrowing. Meanwhile, with the booming AI investment in the West, global government bond issuance is competing with AI investments, causing US government bond interest payments to reach 1.26 trillion annually—soon surpassing US social security spending to become the largest public expenditure. Excessive deficits will gradually worsen US fiscal health, which in turn demands higher risk premiums on government bonds, pushing yields further down and creating a negative risk cycle. In Ray Dalio’s latest book, this is called the "Minsky moment" of debt. Once a major country crosses this debt Minsky moment, it likely marks the turning point of hegemonic decline. So, if high government bond yields are risky, is low yield all profit? Not necessarily. First, low government bond yields cause capital outflows. When overseas yields, like the US at 5%, are high and our domestic yields are low at 1.6%, capital flows from low to high yield areas, putting pressure on our exchange rate. Second, it pressures banks because their net interest margins continue to be squeezed. The recent issuance of special government bonds by our Ministry of Finance to inject 360 billion yuan into six major banks shows this is to replenish bank capital and maintain operational stability amid thin interest margins. The benefits of low interest rates are also clear. They help upgrade our industries and provide cheaper financing costs for our tech companies. As technology is the foundation of our nation, tech firms are entering one of the best financing periods in recent years. For ordinary people, borrowing and loan rates are falling. The key question is where to place our money to achieve stable and decent returns. Stay tuned for upcoming shares where we will continue to provide scientific asset allocation methods. Finally, debt issues always face a challenge, and government bond yields indicate whether the economy is too cold or too hot, or healthy. Both extremes are bad. Only when an economy develops balancedly and borrowing and lending are in equilibrium can the financial market and real economy remain stable. More insights will come later. Click follow to navigate through the interest rate cut cycle with me.

Yen Falls After Rate Hike, RMB Breaks Above 6.7 Against the Trend Today, two strange phenomena appeared in the global foreign exchange market. The first is that the Bank of Japan finally raised interest rates, but the yen fell instead of rising after the hike. The second strange phenomenon is that the Federal Reserve just announced a rate hike, the dollar surged past the 100 mark, but the RMB did not fall; instead, it rose, breaking through the 6.7 level today to reach 6.69. What exactly caused these two major anomalies? And what impact will this have on the global financial markets going forward? First, let's look at the yen. The Bank of Japan's rate hike was already anticipated by the market, so what everyone was more focused on was whether this fourth rate hike, the second this year, would lead to a series of consecutive hikes. The market has already priced in two more hikes this year, and everyone was waiting for Ueda Kazuo to provide guidance on rate hikes. However, the market's expectations were dashed. Ueda remained silent, saying he would not provide any guidance on the future interest rate path and refused to disclose the content of his conversation with Bassett. This led the market to speculate whether Ueda and the US had lost their leverage in joint intervention in the forex market. This dovish stance immediately revived global carry trades, causing the yen exchange rate to fall again today to 157.9. On the other side, our RMB broke through the 6.7 mark today. This strengthening of the RMB is against the trend because just after the Fed's rate hike, the interest rate differential between China and the US widened further, and the US dollar index rose above 100. At this time, the RMB should have depreciated. But if you observe carefully, the RMB has actually been in a continuous appreciation channel. This recent round of appreciation is inseparable from our strong export trade. Last year, our trade surplus reached as high as $1.2 trillion, and in the first eight months of this year, it has already reached $800 billion. Behind this is the continuously accelerating export volume; in August, our export growth rate reached 25%. Among these export destinations, the most outstanding is the United States. In August, our export growth rate to the US was as high as 35%. Although direct exports to the US account for less than 15% of our total exports, if you include exports routed through ASEAN, Hong Kong, and Mexico to the US market, exports destined for the US actually account for as much as 20% of China's total exports. Currently, the US has two major demands for Chinese goods. The first is the very strong domestic demand in the US. The recently released August retail sales and the Fed's upward revision of US economic growth at the September FOMC meeting, likely reaching 2.6%–2.7% next year, continuously increase US demand for Chinese goods. The second is the booming AI infrastructure in the US, which requires a large amount of AI equipment and infrastructure, creating substantial procurement demand for China's high-end manufacturing and equipment. Combining these two factors, I believe this trend will continue until 2027 to 2028, and our current appreciation trend is not yet over. China's RMB exchange rate is a managed floating rate and will not appreciate rapidly and unilaterally. It is expected to appreciate slowly within the managed float. Looking toward the end of the year, I believe it will gradually approach 6.6. Putting the exchange rates of China, Japan, and the US together, we can see a very interesting phenomenon: a country's exchange rate level is not determined by a single rate hike or cut, but ultimately by the country's economic condition and its influence in the global trade system. The appreciation of the RMB and the strength of the US dollar reflect the global influence of a consumer powerhouse and a manufacturing powerhouse. Today's rise in the RMB also drove a strong rally in A-shares. With the Fed's rate hike cycle coming to an end, global capital markets have gotten a chance to catch their breath. The low valuation of A-shares is quite attractive in the global market. I believe we do not need to be overly pessimistic; a slow bull market turnaround may well be on the way. I will continue to share more good news here. Click follow to navigate through the rate cut cycle with me. The above is my personal opinion and does not constitute investment advice. Please be aware of risks.

The global central bank "rate hike wave" is coming, the Bank of Japan is about to raise rates, three major risk warnings The global wave of central bank rate hikes is coming. With the conclusion of the Federal Reserve's September meeting last night, the Fed raised rates by 25 basis points for the first time in three years. And note, according to the Fed's post-meeting dot plot, there will be another rate hike this year, and as many as nine voting members believe there will be 1 to 2 more hikes next year. Reminder: this is very likely the starting gun for a global wave of central bank rate hikes. The European Central Bank just announced its second rate hike of the year at the September meeting. Tonight, although the Bank of England is very likely to hold steady, do not be complacent; the Bank of England may mention in its post-meeting remarks that it will raise rates in November. After all, at the last meeting, as many as three voting members opposed, calling for the start of a rate hike cycle. More dangerously, at tomorrow's Bank of Japan meeting, the market believes with 99% probability that the BoJ will implement its second rate hike of the year, which will be the sixth hike in this cycle, raising the rate from 1% to 1.25%, reaching a 31-year high. So why is this global wave of rate hikes coming so fiercely? The main reason behind it is the high global oil prices and the energy-import-driven inflation caused by Middle East conflicts. Looking at the US August CPI just released, it has reversed from a previous downward trend to an upward trend, with core CPI exceeding expectations at 0.3%, and overall CPI back above 3.4%. Coincidentally, the Eurozone's August CPI also rose above 3%, and Japan has already surpassed its 2% policy target. Behind this turnaround is the unavoidable high inflation driven by oil prices. What consequences might this global wave of central bank rate hikes bring? It likely hides three major risks. The first is the very familiar dollar tide. When global central banks generally raise rates, it means the cost of capital increases, making the dollar increasingly scarce. They join the ranks competing for dollar liquidity. Central banks and treasuries worldwide, plus these AI giants, are all drawing from the same pool, causing the water level to drop. Many countries and companies urgently needing dollars will face high dollar pressure. The dollar tide could trigger financial crises in many financially fragile countries. Whether it was the Latin American debt crisis in the 1980s or the Asian financial crisis in 1997, the shadow of the dollar tide was behind them. The second risk is the major risk of US Treasury yields. This round of US Treasury yields has broken a 30-year high. The 10-year Treasury yield now firmly stands above 5%. After the Fed's rate hike, the market originally expected Treasury yields to be suppressed, but instead, the two-year short-term yield rose, lifting the entire yield curve. US Treasury yields are the global asset pricing anchor; if yields stay at 5% or even move above 6%, global major asset classes, including US stocks, A-shares, and gold, will face valuation cuts due to the higher pricing anchor. The next psychological threshold the market is watching is 5.5%, which is the return on investment for US companies. If US Treasury yields exceed this cost line, it could cause a sudden funding break in the US economy, reducing corporate investment interest and triggering a spiral of economic contraction. The third and deepest hidden risk is the yen carry trade. As mentioned, tomorrow is the Bank of Japan's rate hike meeting, and the market expects two more hikes this year after this one. Everyone knows that once the BoJ raises rates and the yen appreciates again, the global yen carry trade, totaling up to 2 trillion yen, may unwind, with funds flowing back from global capital markets to Japan, potentially causing a repeat of the Black Monday in August 2024. The warning line is at the 150 yen level against the dollar. If the yen-dollar exchange rate falls below 150, the carry trade unwind could cause cheap money in global capital markets to vanish without a trace, and the chain reaction of deleveraging will trigger a financial storm. What does this wave of rate hikes mean for China? First and most obviously, our foreign trade enterprises will be under pressure. As the dollar becomes more expensive, our importers and companies with dollar-denominated debt will be squeezed from both ends. The good news is that by 2025, our importers' hedging ratio has reached 30%, so preparations have been made in advance. Also, the RMB is currently in a strong appreciation channel, so there is no significant foreign exchange risk for now. Another important impact is on our capital markets. The rise in global liquidity levels will cause global funds to withdraw from emerging markets, including our A-shares and Hong Kong stocks. Meanwhile, high US Treasury yields will lower global stock valuations. The US tech sector and China's tech sector are linked; if US tech stocks fall, it will drag down our main tech sector. Therefore, in the coming period, we must closely monitor global central bank statements, especially the Fed's two important meetings in late October and December. I will continue to keep you updated on the Fed's dynamics and provide you with first-hand interpretations of the global financial markets. Click follow to navigate through the rate cut cycle with me.

Federal Reserve September Rate Hike Preview: Dovish Hike, No Need to Panic The Federal Reserve's September policy meeting is just around the corner, and this time it's almost a done deal. So how did the Fed gradually corner itself into this rate hike situation? The main reason is actually Powell. At the July meeting, Powell took a dovish stance, causing the market to lose confidence in him, which forced him to completely revise his image in August. He firmly stated the need to fight inflation and said he would give no guidance—data will speak for itself. The result? Last week’s three major data releases: Nonfarm Payrolls, PPI, and CPI all exceeded expectations three times in a row. On top of that, Iran recently added fuel to the fire, pushing oil prices above 100. The market thinks, "Didn't you say no guidance? Didn't you say the market should price itself?" Well, the market has already priced it in: a rate hike in September. Will you follow the market or not? This is Powell's most awkward position right now. Since the words are out, for the Fed's credibility, I think he will grit his teeth and hike rates. But don't overreact; I personally believe this hike is a dovish hike or a preventive hike. What does that mean? It means the Fed is hiking rates while inflation in the U.S. hasn't spiraled out of control and the economy isn't overheating. Historically, Fed rate hikes fall into two categories: preventive hikes and inflation-fighting emergency hikes. Emergency hikes due to runaway inflation almost always cause liquidity tightening in financial markets—whether stocks, bonds, or gold—leading to sharp declines due to lost liquidity and higher borrowing costs. The other type is preventive hikes, which are hikes implemented while inflation is still under control. Looking back, U.S. stocks often fall first and then rise. The classic example is March 1997, when the Fed made a masterstroke. The situation then was very similar to now: the U.S. internet tech revolution then and today's AI tech revolution both brought huge productivity gains and an investment boom. The Fed raised rates to prevent overheating from excessive investment. When Greenspan announced the hike, he famously said at the meeting that the market had already hiked for him; he was just aligning expectations with reality. Sounds almost identical to what Powell said in July, right? How did the market perform then? Before Greenspan's hike, from January to March, the market dropped about 13%. But within a week after the announcement, it quickly rebounded and recovered losses. This time, the market has been even stronger, with only about a 2% dip since the June highs. However, the bond market has fallen sharply, pricing in three hikes already. The 10-year U.S. Treasury yield has surged above 5%, a first in nearly 30 years. So where does the market go from here? It largely depends on two factors. First, whether the currently high oil prices can quickly cool down. If Trump can successfully broker a ceasefire in the Middle East and oil prices fall back below 90, then this rate hike cycle is nothing to fear. After the September hike, the Fed may pause because U.S. inflation will continue to decline, buying time. Powell's five working groups will revise the inflation framework, and inflation is likely to meet targets by Q1 or Q2 next year, leaving the Fed no excuse to hike further. But in the worst case, if oil prices stay above 100, December could be dangerous, with another hike likely. Two consecutive hikes could create a deep pit for U.S. stocks. However, when looking at the rate hike cycle and the direction of U.S. stocks or global assets, the key is whether the U.S. economy will enter a recession. If it doesn't, stocks are likely to recover within the next year. The U.S. AI tech sector is still in its early growth phase. GDP was 2.1% in Q1 and 1.5% in Q2, still healthy, and nonfarm payrolls are near full employment. Given this economic resilience, I believe this hike is dovish, so no need to panic. But if oil prices stay above 100 in the short term, we should watch for risks. The above is my personal opinion and does not constitute investment advice. Please be cautious.

Both parties are failing, and the central bank has lost control! The three great sages collectively dismantle the firewall, and U.S. fiscal discipline is completely ineffective After the U.S. nonfarm payrolls exceeded expectations, the "Smart King" posted that the Federal Reserve must cut interest rates, or else it will stop doing business with all countries that have a trade surplus with the U.S. He then posted again saying that U.S. interest rates should now be between 0.5%-1%, and we shouldn’t be at 4%. Currently, the federal funds rate is 3.5%-3.75%, meaning the "Smart King" is calling for a one-time cut of 250-325 basis points, which is completely opposite to the market’s bet on a Fed rate hike in September. Recently, I made a video saying that the three great sages in the U.S. now are: the "Smart King," Fed Chair Wash, and Treasury Secretary Bassett, each doing their own thing. The "Smart King" controls oil prices, Bassett controls the 10-year Treasury yield, and Wash controls rate hike expectations. But all three are managing the price of the dollar, i.e., interest rates, yet no one is truly managing the money supply. The U.S.’s massive $40 trillion debt causes Treasury yields to remain high; the 10-year yield has surpassed 4.8%, heading toward 5%. The key underlying issue is: how should the U.S. manage its debt level? I give four words: fiscal discipline. What is fiscal discipline? It means how the government manages spending and who has the authority to say no to the government’s spending impulses. Governments naturally want to spend. Under the electoral system, voters want welfare, politicians dare not cut it for reelection, and even keep increasing welfare, which of course requires spending. The government’s natural impulse is to keep increasing the budget. Fiscal discipline requires supervisory mechanisms and three checkpoints to control debt. The first checkpoint is the U.S. fiscal budget. Before 1960, the U.S. fiscal budget emphasized balanced budgets. But in 1960, Keynesianism emerged, advocating government-driven economic stimulus, with moderate deficits to maintain growth and full employment. After this theory was adopted globally, the U.S. government also started living on debt issuance, becoming a consumer-driven country. Keynesianism advocates deficits at 3% of GDP, but the U.S. actual deficit is now 6%, double the 3% Bassett originally mentioned. The "Great Beautiful Act" he pushed will continue tax cuts for the next decade, increasing fiscal burdens, and by 2036 the deficit could soar above 7%. The first checkpoint has failed; now comes the second: Congressional oversight. The U.S. fiscal budget must be approved by Congress, which is bipartisan and theoretically supervises the ruling party’s budget. In reality, both parties criticize deficits when out of power but spend lavishly when in power. Democrats spend on healthcare, new energy, and immigration subsidies; Republicans spend on military, AI infrastructure subsidies, and voter tax cuts. Bipartisan oversight has become a formality and a tool for election pandering. With the second line of defense breached, the third is the independence of the central bank. U.S. fiscal spending relies on debt issuance; if the central bank cooperates, interest rates rise, increasing government borrowing costs and making debt repayment difficult. Early on, the Fed was under the Treasury, which treated the central bank as a cash bag, demanding low-cost debt issuance, requiring the Fed not to raise rates and to print money to buy Treasuries. In 1951, the Fed Chair and Treasury signed a separation agreement, making the Fed independently decide interest rates. How independent is the Fed now? At the global central bank annual meeting, new Chair Wash, to establish an independent image, took a hawkish anti-inflation stance, saying inflation responsibility lies entirely with the Fed, and if inflation remains high, action will be taken, boosting market confidence. But I have always said that Wash publicly advocated rewriting the 1951 separation agreement in 2025, believing the Treasury should have more market management rights and that part of the Fed’s $6.7 trillion balance sheet should be transferred to the Treasury. Wash is actually weakening the firewall by detour, extending an olive branch of surrender to the Treasury. The situation is clear: U.S. debt is problematic, with 30-year yields above 5.3% and 10-year at 4.8%, both 20-year highs. The three great sages face the debt firewall: the "Smart King" crashes into the wall from outside, Bassett pushes the wall around the side, and Wash, who should guard independence, dismantles the wall from within, all surprisingly united. Short-term U.S. debt turmoil cannot be resolved; the market focuses on short-term measures. Treasury buybacks and falling oil prices do not solve the long-term fiscal discipline problem. Only when Bassett revises future fiscal budgets and the "Smart King" talks about cutting spending will U.S. debt be saved. The opportunity may come after the midterm elections; if the "Smart King" loses both chambers, the opposition will attack, and the "Great Beautiful Act" and fiscal budget may be reconsidered or overturned, giving U.S. debt a new turning point. The above is only a personal opinion and does not represent investment advice; please be aware of risks.

Today, three major negative factors simultaneously impacted the market, involving three important events. First, the U.S. released the August PPI, which exceeded market expectations, jumping directly from 4.7% last month to 5.4%, surpassing the expected 5.3%. This means it moved from the 4% range directly into the 5% range. This directly hit market confidence regarding tomorrow's CPI expectations. Everyone believes that given the rise in oil prices, the Federal Reserve is very likely to raise interest rates in September. After the PPI release, the probability of a Fed rate hike rose from just over 60% to 74%, marking the first blow. The second blow is today's oil prices. Due to the escalating conflict in the Middle East, with the Houthi forces causing trouble again, WTI crude oil prices broke through the $100 mark today. This oil price increase will be reflected in the Fed's considerations for rate hikes, i.e., oil price inflation leading to Fed rate hikes. The third negative factor is the just-concluded September ECB monetary policy meeting, where the ECB raised rates by 25 basis points. What does this rate hike represent? It signifies another tightening of global liquidity, raising the water level again. We can see that after this hike, both U.S. Treasury yields and European bond yields collectively rose. Moreover, the ECB also raised its forecasts for Europe's economy and inflation, indicating that inflation will persist longer, extending to 2028. The 2028 inflation rate forecast was raised from 2.2% to 2.3%. At the post-meeting press conference, ECB President Lagarde gave a bit of good news, just a little. She mentioned three surprises: First, Europe's economic resilience exceeded her expectations; second, the current inflation situation in Europe is better than she imagined, surpassing her expectations. Oil prices have not significantly spread to other goods, and consumers have adjusted their purchases by reducing high-priced items and increasing low-priced ones, keeping overall price levels, especially food price increases, moderate; third, due to the unresolved Middle East situation, it is expected to last longer than she anticipated, which is why the 2028 inflation forecast was adjusted. Overall, the intensity of inflation is not as severe, but the duration will be longer. After this statement, the market was somewhat comforted, meaning that the market's biggest concern—the impact of oil prices on consumers in Europe and the U.S.—is not as bad as imagined. Therefore, we saw the Fed's rate hike probability slightly drop from 74% to 70%. This 70% probability suggests a rate hike is very likely in September. However, there is no need to panic because the market has basically priced in the Fed's rate hike probability. The Fed's new chair, Powell, already signaled a hawkish rate hike expectation at the global central bank conference in August. This rate hike, once implemented, may be a short-term negative for the market but a long-term positive for stabilizing market sentiment. Whether the rate hike happens depends on the U.S. August CPI data to be released tomorrow night. At 8 PM tomorrow, you will receive a synchronized analysis. The above is only a personal opinion and does not constitute investment advice. Please be aware of the risks.