As a person in the US stock market or cryptocurrency, have you ever had this experience? Even the slightest movement in the US economy and employment can make your nerves tense. Before the data comes out, you stare at the news window, constantly refreshing it, while secretly praying while watching the candlestick chart.
Recently, this topic has been hyped up again and again. I just happen to take this opportunity to explain to you how the news affects the candlestick chart and drains your wallet.
First, let's look at the relationship between Japan's interest rate hike and the depreciation of the US dollar. The core logic here is: interest rate parity and the closing of carry trades.
Over the past twenty years, Japan has maintained zero or even negative interest rates, while U.S. rates have been relatively high. This has spawned the classic 'carry trade': investors borrow yen at very low costs, convert it to dollars, and invest in dollar assets (like U.S. Treasuries, U.S. stocks), earning the interest differential. Once Japan enters an interest rate hike cycle, it means the cost of financing in yen will rise, narrowing the interest differential between Japan and the U.S. This will trigger:
1. Closing carry trades: Investors need to repay yen loans, so they sell dollar assets and buy yen, leading to increased demand for yen and increased supply of dollars.
2. Capital repatriation: International capital may be attracted to higher interest rates in Japan, flowing out of markets like the U.S. and back to Japan.
This process of closing positions and repatriation manifests in the market as 'yen appreciation, dollar depreciation.' This is the most mainstream and direct short-term market reaction logic.
So, is the depreciation of the dollar a positive or negative factor for the stock market?
The impact of a depreciated dollar is global and affects different countries and sectors of the stock market in vastly different ways.
Impact on the U.S. stock market (S&P 500, Nasdaq): A double-edged sword.
Positive aspects:
1. Increase in multinational company profits: About 40% of the revenues of S&P 500 companies come from overseas. A depreciated dollar means that these overseas revenues are worth more when converted back to dollars, directly boosting financial report profits. This is the most important positive channel.
2. Enhance export competitiveness: Goods and services made in America are more competitively priced in international markets, which benefits export-oriented industries (such as high-end manufacturing, aerospace, and agriculture).
3. Global liquidity may be abundant: A depreciated dollar is sometimes associated with an increase in global risk appetite, and funds may flow from dollar assets to emerging markets, but it may also push up global asset prices, including U.S. stocks.
Negative aspects:
1. Intensify imported inflation: The United States relies heavily on imports of consumer goods. A depreciated dollar will increase import costs, which may complicate the Federal Reserve's task of combating inflation, delay interest rate cuts, or even raise concerns about interest rate hikes, which would suppress stock market valuations.
2. Weaken the attractiveness of dollar assets: For international investors, holding assets denominated in dollars means that if the dollar itself depreciates, their returns will be eroded by exchange rate losses, which may lead to capital outflows.
3. Market volatility: If the trend of dollar depreciation raises concerns about the dollar's status as a reserve currency (though this is extremely unlikely in the short term), or leads to a sell-off of government bonds and rising interest rates, it could severely impact the stock market.
For the overall U.S. stock market, historical data shows that moderate dollar depreciation is often positively correlated with U.S. stock price increases, mainly due to the profit growth effects of multinational companies. However, rapid and disorderly depreciation tends to be negative.
After looking at the above points, ask yourself whether this is a negative or positive signal? In fact, this news is exactly what the major players like to use in their operations, because whether it's a rally or a sell-off, it can be slightly packaged to give you a reasonable 'reason' for the rise or fall.
When the major players want to sell off, they will tell you that Japan has raised interest rates, that money is flowing back to Japan, and that funds from the U.S. stock market and cryptocurrency markets are flowing out, causing stocks and cryptocurrencies to drop.
When the major players want to rally, they will tell you that Japan has raised interest rates, that profits for large American companies have increased, and that more money is flowing back to the United States, causing stocks and cryptocurrencies to rise.
Therefore, in the midst of various messages flooding around today, being able to maintain independent thinking and establish long-term investment goals is the path that will allow you to go further.
