Former U.S. Treasury Secretary Lawrence Summers recently pointed out that the Federal Reserve's 50 basis point rate cut last month may have been a wrong decision. In Summers' view, this sharp rate cut was a mistake, but fortunately the impact has not been serious so far.

The reason is that the non-farm payrolls data released by the U.S. Department of Labor on October 4 was unexpectedly "excellent". Non-farm payrolls increased by 254,000 in September, far exceeding the market's estimate of about 150,000. However, some people questioned the water content of this data, because the data showed that the number of U.S. government employees was as high as 22.216 million, an increase of 785,000 in one month. You know, the total population of the United States is only 342 million, so the ratio of government employees to the total population has reached 6.4%. If the Biden-Harris administration had not tried its best to increase the number of government employees in order to make the employment data look better at the time of the election, then the company would actually have reduced more than 600,000 employees, which is undoubtedly an extremely poor data performance.

But surprisingly, the US financial community turned a blind eye to this and sang praises of the US economy. Even the USD/RMB exchange rate rebounded from 6.96 to 7.06, which is truly incredible.

Therefore, some people believe that the subsequent interest rate cuts in the United States should not be reduced by another 50 basis points, and the maximum reduction can only be 25 basis points. This can be regarded as the American version of "swelling up one's face and filling one's belly with fat". In fact, the Americans made such a statement largely because they saw the Chinese stock market soaring and funds began to flow into China. In essence, they were unwilling to lose in the financial war. However, now they are doomed.

The money-making effect of the Chinese stock market has already emerged. Not only have some of China's overseas deposits and hot money quickly returned, but foreign funds have also poured into China. During the National Day holiday, although the mainland stock market was closed, the Hong Kong stock market continued to rise sharply, and a lot of it was bought by external funds. For example, Goldman Sachs once mentioned that the Indian market will become vulnerable when there is "intense" buying in the Chinese stock market. India's Nifty index fell 4.5% last week, its worst weekly performance since June 2022.

Nikhilesh Kasi, a trader at Goldman Sachs in India, said the most common question clients have asked over the past two weeks has been “Are we seeing money flowing from India to China?” Kasi answered with a clear “yes,” explaining that the trend is clear from the flows they have observed.

It can be seen that the subsequent funds will show the characteristics of some rising and some falling. Some developing countries' stock market funds, and even European, American and Japanese funds, have to make the Chinese mainland stock market or Hong Kong stock market stocks that are highly correlated with the Chinese mainland stock market as basic configurations based on the profit effect.

Conclusion:
No matter how the Americans manipulate the market, they are powerless to turn the tide. The funds attracted by the high interest rate and strong dollar in recent years have shaken their trust in the dollar, otherwise the skyrocketing gold price cannot be explained. As the saying goes, the situation is stronger than the people. Today, the United States cannot afford to raise interest rates, and the situation of enterprises requires them to quickly cut interest rates, otherwise no industry can bear such high interest rates. The practice of enterprises raising prices and employees raising wages to fight inflation will make it difficult for the United States to reduce inflation. Enterprises are in trouble when there is inflation, and they are even more difficult if there is no interest rate cut. Therefore, Americans are just talking about regretting the interest rate cut. They have no choice and the interest rate cut is imperative.

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