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Rumors of Powell's dismissal ignited the market! The abnormal movement of the US dollar sends red flags, may the "terrifying data" be disappointing tonight?
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Hello everyone, today XM Forex will bring you "[XM official website]: Rumors of Powell's dismissal triggered the market! The abnormal movement of the US dollar released red flags, may the "terrifying data" be disappointing tonight?". Hope it will be helpful to you! The original content is as follows:
Asian market market
On Wednesday, rumors that Trump would fire Powell triggered market turmoil, and the US dollar index plunged in the session. As of now, the US dollar price is 98.45.
1. The news that Trump intends to fire Powell caused a three-time kill in US stocks and bonds, gold soared, and Trump denied that the market stabilized immediately.
2. Trump's approval rating dropped to the same level as his lowest level during his tenure.
3. Trump: I hope the oil price can be lowered a little more, the oil price of $64 per barrel is great.
4. Hassett, director of the White House National Economic xmserving.commission: The Federal Reserve's actions are "very, very slow", and inflation data have been performing well.
5. The US PPI annual rate in June recorded 2.3%, lower than the expected 2.5%, the lowest since September 2024, with the previous value up from 2.6% to 2.7%.
6. Federal Reserve Beige Book: The economic outlook is neutral to slightly pessimistic. Manufacturing activities have dropped slightly, and corporate recruitment has remained cautious.
7. Tariffs
① Canada will tighten steel quotas for some foreign countries.
②Trump: General tariff rate notices will be sent to more than 150 small countries, and a 10% or 15% tariff may be imposed on smaller countries.
8. The EU proposed nearly 20,000The seven-year budget of €589.6 billion includes a €589.6 billion xmserving.competitiveness, prosperity and security fund, of which €450.5 billion is designated for EU xmserving.competitiveness funds.
9. India's gold imports in June fell by 40% year-on-year, and silver imports doubled year-on-year.
10. Iran’s supreme leader Khamenei: Iran is ready to respond to any new military attacks.
11. Israel launched air strikes in areas near the Syrian "Presidential Palace" and in the Syrian "General Staff" building.
Summary of institutional views
xmserving.comprehensive market evaluation: Fed independence is tested
Steve Sosnick, chief strategist at Interactive Brokers, said that the market should be worried that Fed independence may be interfered with. Yesterday's dollar plummeted was expected. A sharp drop in short-term interest rates is also expected, because no matter who is elected, he will probably be more willing to cut interest rates. Perhaps some traders prefer to lower interest rates rather than to see loss of independence.
Francesco Pesole, a foreign exchange strategist at Dutch International Bank, said that if Powell is removed from office and is mentioned again, he will see a larger sell-off in the US dollar. The independence of the Federal Reserve is the basis of the United States' status as the largest reserve currency.
xmserving.comprehensive Market Evaluation: It would be a mistake to fire Chairman Powell
Jamie Cox, managing partner of Financial Group, said that it would be a mistake to fire Chairman Powell. The independence of the Federal Reserve is crucial to the effectiveness of monetary policy, and the last thing the country needs is the president's order to formulate monetary policies. If the president and the president clash, Congress may use this as an excuse to intervene in amending the Federal Reserve Act—none of these changes are conducive to the integrity of monetary policy.
Christopher Hodge, an economist at the French Foreign Trade Bank, said that the Fed's governance and processes are largely informal and rely on norms and traditions rather than regulations. These norms have been developed over decades, cementing the Fed’s position as a reliable, trustworthy and nonpartisan organization, helping to calm rather than exacerbate expected volatility.
Maintaining existing traditions is the best way, but even if other options are chosen, there may be sufficient security to prevent the continued substantial damage to the Fed's credibility. If the new chairman is considered untrustworthy and impartial, there is a possibility of serious disagreement in FOMC decisions. Therefore, choosing Waller as his successor is the wisest choice.
Deutsche Bank: Japan's bond market hit a record high, and the general election theme focuses on "financial suppression"
The Japanese bond market ushered in some important milestones on Tuesday. Japan's 10-year Treasury bond yield hit its highest level since 2008, while the 30-year Treasury bond yield reached its intraday highest point since its first issuance in 1999.
These latest market changes occur ahead of the Japanese Senate election this Sunday. Currently, various Japanese political parties areActively advocate more fiscal easing policies. The ruling Liberal Democratic Party and Komeito Party coalition promised to issue one-time cash subsidies, while the opposition proposed a more radical consumption tax cut plan, which could have a more substantial impact on fiscal revenue.
We believe that to some extent, this election can be seen as a referendum on “financial suppression.” Specifically, it is about how the government redistributes wealth from the household sector to the government balance sheet in an engineering way to achieve the sustainability of debt in a high-debt society. Japan has actively implemented this strategy over the past 12 years, as shown in the figure, during which debt has actually stabilized. However, recent high inflation and long-term negative real interest rates are becoming increasingly unpopular, and high prices have become the biggest topics in this election. So you can view tax cuts and cash subsidies promises made by parties as families trying to regain their fiscal space.
UBS: The "Big and US Act" will soar the fiscal deficit, and the interest on Treasury bonds may exceed $X trillion
The iconic legislation for President Trump's second term, the "Big and US Act" (OBBB), is expected to significantly increase the US fiscal deficit, which is currently at a historical high. This could also push up interest rates and increase pressure on tax increases in the future.
The bill, in its existing form, will lead to an increase in deficit spending. All estimates show that the Big and U.S. Act will increase deficit spending in the next decade. According to the Congressional Budget Office (CBO), the bill could add about $600 billion to the deficit annually by 2035 (about $3-4 trillion in cumulative spending), which would put more pressure on an already difficult fiscal situation. It is worth noting that the annual federal deficit in the United States in 2024 has approached $2 trillion, accounting for -6.3% of GDP, and is one of the largest deficits on record during a non-recession period.
Net interest expenses or debt repayment costs may also rise. With other conditions unchanged, the Big and U.S. Act is likely to push up interest rates over the next decade, causing the government to pay higher interest rates to its creditors. If the tax reform measures in the Big and U.S. Act are permanent, the federal government's annual net interest expenditure may be close to $2 trillion by 2035, far higher than the $1.5 trillion in the baseline scenario.
In view of the more volatile fiscal paths brought about by the Big and U.S. Act, policy makers will face increasing pressure in the medium and long term, and will have to increase incomes (such as tax increases in the future) or cut spending (such as social security reform).
French Foreign Trade Bank: 30% tariffs may cause a sharp decline in the euro zone GDP, and it is expected that the US tariff period against Europe will be postponed again.
According to the European Central Bank's latest euro zone macroeconomic forecast, a "severe scenario" involving the United States raising tariffs to 20% across the board and accompanied by EU symmetric retaliation has been included in the assessment. In this scenario, it is expected that the euro zone GDP growth will deviate from the base every year in 2025 and 2026.Line -0.4 percentage points.
If the United States imposes a 30% tariff on EU goods and triggers retaliation from the EU, the loss of eurozone GDP will be even more significant, with an estimated deviation from the baseline by about 0.5 percentage points in 2025 and 0.6% in 2026. It is worth noting that the loss of US GDP is expected to be significantly higher in this case.
We believe that despite the slim hope, there is still a chance of success in the negotiations until August 1. Otherwise, under pressure from Europe and more importantly, the August 1 deadline may be delayed again under pressure from the market and US xmserving.companies.
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