There is now a potential hidden danger; the Americans deeply regret the significant rate cut in September, which has allowed our policy stimulus to be more aggressive. Therefore, in the past month, the Americans have been intensively regulating economic data to create an atmosphere where rate cuts should slow down, or even possibly raise rates again.
Since October, a series of data such as US non-farm payrolls, CPI, and initial jobless claims have all exceeded expectations. On one hand, this showcases impressive economic data to support the Democratic Party's presidential campaign; on the other hand, it attempts to suppress China's policy space.
However, while the Americans are holding firm, their little brothers and friends are not cooperating.
The most loyal little brother, Canada, significantly lowered interest rates by 50 basis points on October 23, reducing the benchmark rate from 4.25% to 3.75%, marking the fourth consecutive rate cut, with the previous three being cuts of 25 basis points each.
Canada has accelerated its rate cuts, lowering rates by 125 basis points this year.
The ECB cut rates again on October 17, marking the third consecutive rate cut this year, totaling 75 basis points. Moreover, the CPI data continues to be weak and below expectations, indicating that the risk of economic decline is increasing, suggesting further rate cuts ahead.
ECB board member Centeno stated: The European Central Bank should consider a larger rate cut.
The market currently expects the ECB to cut rates by 50 basis points in December to support the weakening economy.
Canada and Europe have accelerated their rate cuts; how long can the Americans hold out?
They are allies, with very close political and economic ties. As both Canada and Europe’s economies weaken, can the Americans remain unaffected?
Therefore, from a one to two-year perspective, it is an inevitable trend for the Americans to enter a major rate-cutting cycle.
Of course, with the US elections still two weeks away, the Democratic Party (currently in power) will definitely try every means to prop up the data in order to support Harris's campaign.
The US dollar index has surged 4% since the end of September, which is a significant increase for a currency, and US Treasury yields have also risen in tandem.
