The global market storm triggered by the surge in the US dollar is still going on.

As the US dollar index rose above 114 to a 20-year high, US stocks fell overnight at midday, and the three major stock indexes fell for five days in a row. The Dow is down 20 per cent from its high set in early January, falling into a bear market for the first time since the COVID-19 outbreak.

Market analysts say the root cause of the current global market turmoil is the strength of the dollar, and when financial markets return to calm depends largely on when the dollar index stops rising.

Historically, since 1985, the dollar index has experienced four complete cycles of ups and downs. Soochow Securities predicts that the fourth wave of dollar index shocks has just begun, starting a pullback in the first half of 2023 and continuing to rise in early 2024.

According to the market point of view, according to past experience,The dollar index of 80-120-160 has become the "identification line" of the financial situation.

80 points: the lowest point

120: there will be an Asian financial turmoil

160: Latin American financial crisis will occur

The dollar index can be used as an indicator of global market risk appetite.In other words, if you can accurately predict the trend of the dollar index, you can predict the extent of the rebound or fall of the stock market.Once the dollar index is determined to turn back down, it may be a signal of global financial risk relief.

What is the trigger for the peak of the dollar index?

Everbright Securities said the dollar has the dual attributes of currency and safe-haven assets. From a monetary perspective, the peaking of the dollar requires a reversal of the relative economic and policy cycles of the United States, the euro zone, Japan and other countries. From the perspective of safe-haven assets, the peaking of the dollar requires a pullback in global economic policy uncertainty. Therefore, the trigger for the peak of the dollar index can be observed from three dimensions.

First,Market expectations for the Fed to raise interest rates no longer continue to strengthen, or even fall back.December FOMC will be an important observation node.

Second,The impact of energy shortages on the euro zone has peaked.The first quarter of 2023 will be an important observation point.

Third,The conflict between Russia and Ukraine no longer continues to escalate, and the risk of the global political and economic situation tends to ease.

Taken together, the ECB has followed the Fed in raising interest rates sharply on September 8, and Japanese authorities have implemented "yen-buying" unilateral foreign exchange interventions on September 22, the bank said. The upward slope of the dollar index is expected to slow gradually. However, the main drivers of the upward dollar index have not been fundamentally reversed, and the dollar index is expected to continue to fluctuate upward.December is expected to be the first observation point on whether the dollar index will peak.

What are the current expectations of interest rate hikes in the market?

As mentioned above, the stabilization of market expectations of a Fed rate hike will be an important trigger driving the peak of the dollar index.

According to the Fed's September FOMC bitmap, FOMC committee members prefer to raise the federal funds target rate to 4.25% and 4.50% by the end of 2022. The current target rate for federal funds is 3.00%, which means that the policy rate will be raised by 75 and 50 basis points respectively at the November and December meetings.Therefore, whether the December interest rate meeting will slow down the pace of interest rate hikes as scheduled will be an important observation point.

According to the latest CME Fed observation, the odds of raising interest rates by 50 basis points and 75 basis points in November are 31.7 per cent, 68.3 per cent, 30.8 per cent and 67.3 per cent respectively.

At present, Wall Street is also beginning to bet that the Fed will be "endless".

UBS expects the Fed to raise interest rates by 75 basis points for the fourth time in a row at its November meeting, followed by 50 basis points in December. By the end of this year, the target range of the federal funds rate will reach 4.25% Mel 4.5%.

As the "most radical" Wall Street bank, Nomura bet has also been "heightened"!

Nomura is raising its forecast for the peak of the fed's current rate hike cycle by 75 basis points to 5.25-5.50%.According to its released roadmap for interest rate changesThe Federal Reserve will raise interest rates by 75 basis points each in the remaining two meetings of this year.It then raised interest rates by 50 basis points in February and another 25 basis points in March next year.

In terms of interest rate cuts, Nomura expectsStarting in September next year, the Fed will cut interest rates at an initial rate of 25 basis points per meeting.The rate cut will accelerate to 50 basis points per meeting by the second quarter of 2024, and the policy rate will fall all the way to 1.125% by the end of 2024.

Morgan Stanley and "wooden Sister" have warned that the soaring trend of the US dollar will end in crisis.

Although in the current high inflationary environment, the appreciation of the dollar helps to reduce import costs, thereby alleviating domestic inflationary pressures in the United States. However, the United States is not immune from the global market turmoil, and the blow caused by the appreciation of the dollar to the global economy will also bring spillover risks to the United States.

Michael Wilson, chief US equity strategist at Morgan Stanley, one of Wall Street's most outspoken bears, warned a few days ago thatThe recent rise in the dollar has created an "unsustainable situation" for risky assets such as stocks, a strength that has led to some kind of financial or economic crisis in the past.

The surge in the US dollar has hurt the overseas revenue value of American companies, Morgan Stanley calculatesEvery 1% rise in the dollar index causes profits to fall by 0.5%.It said that in addition to other issues such as soaring input costs,A stronger dollar will sap about 10% of fourth-quarter earnings for the s & p 500.

Wooden Sister Cathie Wood, who suffered from the collapse of technology stocks, tweeted again on Tuesday to criticize the Federal Reserve, saying that the Fed's move to raise interest rates sharply to curb inflation was excessive.The resulting surge in the dollar has had a devastating impact on the rest of the world and will eat back at US competitiveness, eventually forcing the Fed to turn.

Niu friends.

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