The global financial market is shaking due to the Chinese real estate crisis and the prolonged U.S. austerity. It’s not just Bitcoin. The 30-year mortgage rate hit a 20-year high as the U.S. government bond rate soared due to relatively high inflation and rising Japanese government bond rates.
The outflow of funds is also continuing in the Chinese stock market. Foreigners are exodus due to the possibility of default of Chinese real estate developer Country Graden, Evergrande Group’s bankruptcy protection application, and the weak yuan. According to Bloomberg News, as of the 17th, foreigners have been net selling on the Chinese stock market for nine consecutive days, the longest period since December 2016.
Some argue that the weak yuan could be the epicenter of the next crisis. “Western companies are stepping out of China on geopolitical issues, putting pressure on the yuan,” hedge fund EDL Capital said. China’s labor market is less competitive than Vietnam and India, and China’s foreign exchange reserves may be smaller than expected due to slowing economic recovery after COVID-19, he said. “The weakening of the Chinese yuan could be the next black swan event.” The Black Swan event refers to an event that is unlikely to happen but has a tremendous impact and ripple effect if it does.
Demand for dollars is increasing due to the weak Chinese economy. The dollar index, which shows the value of the dollar against the currencies of six major countries, jumped to 103.5 during the day. The strong dollar is a representative source of instability in the global financial market. The dollar index was below 100 at 99.9 on the 18th of last month, but it is rapidly rising due to the possibility of an additional U.S. rate hike and global financial market instability. “The dollar has been rising since mid-July,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. “Expectations that U.S. interest rates may remain higher for a longer time than major countries such as Europe and the United Kingdom are one of the factors behind the dollar’s strength.”
Wall Street expects the unstable situation to continue for the time being. This is because the Chinese government has not yet come up with a large-scale stimulus plan, and there are still mountains to overcome before the Fed formalizes the suspension of interest rate hikes. The key is what message Fed Chairman Jerome Powell will deliver at the Jackson Hole meeting, which will be held from the 24th to the 26th.
