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Samsung Electronics shares fell 2% and SK Hynix shares fell 3%.Japans Topix index extended its losses to 1%.On September 17th, Huaweis official Weibo account announced the release of its Top 10 Technology Trends for an Intelligent World by 2035 on September 16th, noting that by 2035, total computing power will increase 100,000-fold, ultimately spurring the rise of new computing. Huawei believes that AGI will be the most transformative driving force over the next decade. With the development of large models, AI agents will evolve from execution tools to decision-making partners, driving industrial revolutions. Communication networks will connect more than 9 billion people to 900 billion agents, enabling the transition from the mobile internet to the internet of agents. Currently, human-computer interaction is shifting from graphical interfaces to natural language and evolving towards multimodal interaction that integrates all five senses.Futures data from September 17th: Spot gold prices surged above the 3,700 mark overnight, with COMEX gold futures rising 0.23% to $3,727.50 per ounce, and SHFE gold futures closing up 0.19%. Expectations of a Federal Reserve rate cut, a weakening dollar, and geopolitical uncertainty are all contributing to golds performance. Focus is on the Federal Reserves September meeting and the subsequent Quarterly Economic Projections (SEP). The US dollar continued to weaken on Tuesday, with the US dollar index falling 0.74% to a low of 96.54, hitting a near two-month low. Furthermore, the dollar fell 0.9% against the euro, reaching its lowest level since September 2021. Regarding economic data, US retail sales for August, released on Tuesday, rose 0.6% month-over-month, exceeding expectations of a 0.2% increase. The previous reading was revised from 0.5% to 0.6%, demonstrating resilience in consumer spending. The Federal Reserve held its meeting early Thursday morning, and a rate cut is all but certain. With the US Presidents newly nominated Fed Governor, Milan, participating in the FOMC meeting, the published dot plot is expected to show a more dovish tone, with the number of rate cuts for 2025 expected to fluctuate between two and three. Furthermore, continued pressure from the White House on Powell and other governors is crucial. Concerns about the Feds independence may continue to exacerbate market volatility.According to the Wall Street Journal: Eli Lilly (LLY.N) will invest $5 billion to build a factory in Virginia, USA.

What Impact Does Inflation Have on the Dollar?

LEO

Oct 25, 2021 14:08

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The dollar hovered around a two-week low on Thursday, weighed down by the latest insistence from Federal Reserve chairman Jerome Powell that rate increases aren’t on the radar, while sterling has been riding higher with re-opening optimism.


Overnight, the Fed first sounded confident about the economy in its statement. Then Powell was more circumspect and said in his news conference that rate increases were “a ways away” and that the job market still had “some ground to cover”.


The greenback initially rose following the statement, before retreating to a two-week low of $1.1849 per euro after Powell’s remarks.


Improved market mood after Bloomberg reported China’s securities regulator held a phone call with banks to soothe fears about the recent selloff also put some support behind riskier currencies overnight, analysts said.


“The reaction was to the Powell presser, which was seen as dovish,” said National Australia Bank’s head of FX strategy Ray Attrill. “And improving risk sentiment should be associated with a weaker dollar,” he added, noting the rebound in U.S.-listed China tech names and recent gains in re-opening exposed firms.


The U.S. dollar index fell for a third straight session on Wednesday and hit a two-week low of 92.233, then held near that level at 92.257 early in the Asia session.

“In the short-term, there’s been a reduction of taper fears, and that’s why we’ve seen the dollar heading lower,” said Jeffrey Halley, senior analyst at brokerage OANDA in Jakarta.


“Improving risk sentiment should be associated with a weaker dollar,” added National Australia Bank’s head of FX strategy Ray Attrill.


“We didn’t expect this policy decision to cause too many waves and that’s exactly what it’s looking like,” said Ryan Detrick, senior market strategist at LPL Financial. “The Fed is seeing improvement in the economy, but the economy still needs assistance they’re going to leave rates where they are.”


Still, some see risks ahead as the Fed prepares eventually to start raising rates.


Inflation has dominated investing conversations in 2021. Many countries have rebounded strongly from the COVID-19 crisis and are experiencing significantly higher-than-expected inflation. The annual inflation rate in the United States jumped to 5% in May 2021, the highest level since August 2008.


Inflation Losers


So which sectors suffered the most during the higher inflation regimes? Our analysis of the 30 sectors covered by the Kenneth R. French Data Library found that when inflation exceeded 10%, the worst-affected sectors were those that dealt directly with consumers — consumer goods, autos, retail, etc. Despite their ability to adjust their prices at will, these businesses seem to struggle to pass the increases to their customers.  


A current manifestation of this is the European financial services industry. Banks have hesitated to impose negative interest rates on their retail savings accounts, but nevertheless have charged negative rates on the deposits of asset managers and other institutional customers.

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Inflation Winners


The same sectors did not uniformly underperform when inflation hovered between 5% and 10%. Some even generated positive returns. In contrast, the sectors that most benefitted from high inflation were almost identical during the two higher inflation regimes: specifically, energy and materials, which investors often rely on when positioning equity portfolios for higher inflation.

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Investors have inflation nerves 


Almost half (46 per cent) of respondents to a UBS study of 2,999 investors and 1,201 business owners around the world think that inflation will pick up speed over the next 12 months, with US respondents being the most concerned. 


Some 46 per cent of those surveyed expect a faster rise in inflation, and 44 per cent expect prices to rise at the same pace. Only 10 per cent predict that it will slow down, according to the UBS Investor Sentiment survey. The study was conducted between 23 June and 12 July. The sample was split across 15 markets: Argentina, Brazil, Mainland China, France, Germany, Hong Kong, Italy, Japan, Mexico, Russia, Singapore, Switzerland, the UAE, the UK and the US. 


The study found that 58 per cent of the respondents thought that it had some impact on portfolios and 26 per cent said it will significantly affect it. 


The survey found that 35 per cent of investors plan to add stocks, 33 per cent plan to add precious metals, 32 per cent plan to add sustainable investments, and 32 per cent are planning to add real estate. While inflation is a concern, global investor optimism remains high on their own region’s economy for the next 12 months (70 per cent) and stock market performance over the next six months (67 per cent).


“Though we expect the recent rise in inflation to ease, the outlook for inflation remains uncertain and, therefore, building inflation protection into portfolios is an appropriate step for investors to be taking now. This includes investing in commodities, private market infrastructure, and stocks with pricing power, as these areas tend to perform better in an inflationary environment and will help to preserve purchasing power over the long term,” Tom Naratil, president of UBS Americas and co-president of UBS Global Wealth Management, said. 


Iqbal Khan, president of UBS Europe, Middle East and Africa and co-president of UBS Global Wealth Management, said: “The Delta variant is leading to renewed worries about lockdowns, inflation has proven to be higher and longer lasting than many thought - among them the Fed - and US/China tensions are resurfacing. 


“It’s no wonder that we see some nervousness and uncertainty amongst investors, particularly in the US and Asia. Our view is that there will be no return to national lockdowns and we’ll see inflation recede in the second half, meaning the Fed won’t need to withdraw stimulus. This should be positive for the re-opening of economies, recovery trades and many of the secular growth winners,” he added.