The Chinese Stock Market Fall, Reporting of Giants and the Fed

28 de jul. de 2021

The Chinese stock market is in free fall this week. Which looks especially strange against the background of a general increase in risk appetite. But the fact remains, according to the results of yesterday, the size of the fall this week approached the level of 10%. To put it mildly, a lot. The reason was the information published over the weekend about the new rules regarding the educational technology sector. In particular, that now it should be a non-profit activity.

For buyers in the US stock market, this is a pretty loud warning signal. And they heard it clearly yesterday, as the Nasdaq fell 2%. Although things could go according to last week's scenario, as yesterday's reports from Apple, Microsoft and Alphabet left no room for doubts and negative thoughts.

In general, as we noted at the start of the week, you need to wait for at least tonight, when the mood can spoil the Fed or the end of the week, when the positive wave subsides and the markets can think about taking profits.
But let's talk more about the Fed. The central bank is, by and large, cornered. After the latest data on NFP and other macroeconomic statistics, it will no longer be possible to hide behind the second part of the “double mandate”. The economy is showing too aggressive recovery rates to be doubted and argued for inaction by the fragility of growth. That is, the Fed is left face to face with inflation.

We will remind, earlier in the US Central Bank they said that inflation is a temporary phenomenon, which means that it can be ignored, because it is not representative and is a statistical outlier. But recent data have shown that it is not only not decreasing, but is continuing to grow. This applies to both industrial inflation and consumer inflation.
Is there any reason to expect inflationary pressures to decrease in the foreseeable future? Definitely not, it is enough to look at the graphs of the cost of container shipping and transportation of dry cargo (Baltic Dry Index), or the dynamics of commodity markets (Bloomberg Commodity Index) to understand the pressure on producers' costs will continue. This means that industrial inflation will grow, followed by consumer inflation.

All this leads to one conclusion - it's time for the Fed to act. And while it is very unlikely that we will see concrete steps today, the conversations and discussions at the FOMC meeting can be extremely substantive. That is, the Fed can give a signal that they not only see the problem, but also recognize the need to solve it. If all this is so, then sales in the stock market can not be avoided. But the US dollar will have a good chance of growth.