Cheong Hong Yuan: The Positive Correlation between the US Dollar Index and Oil Prices - When the US Becomes a Net Oil... - 1 views
started by anonymous on 12 Sep 23
started by anonymous on 12 Sep 23
Start a New Topic » « Back to the Investment & Personal Finance group
Firstly, we must clarify a core fact, which is that since 2020, the United States has become a net exporter of oil. This means that the inverse relationship between the US dollar index and oil prices that has been observed in the past few decades has undergone significant changes. Cheong Hong Yuan believes that this is because when oil prices rise, the US economy will benefit, thereby driving up the US dollar index. This shift has not only brought new investment opportunities for investors, but also posed new challenges to the global financial market.
Of course, this phenomenon is not just about the changes in oil prices and the US dollar index. Cheong Hong Yuan mentioned that the upward movement of the US dollar index and the 10-year US Treasury yield this week was largely driven by the rise in oil prices. Specifically, the 8 basis point increase in the 10-year US Treasury yield, 7 basis points of which came from implied inflation expectations, while the real interest rate only contributed 1 basis point. This highlights the core role played by the transmission effect of rising oil price expectations.
Cheong Hong Yuan further explained that as the United States has become a net exporter of oil since 2020, the rise in oil prices means that the US economy will benefit, and therefore the US dollar index will also strengthen. This shift is significantly different from the market logic of the past few decades and requires investors to re-examine and adjust their strategies.
However, this change is not just a simple numerical change. It reflects the redistribution of global economic power and demonstrates how different countries utilize their own advantages to achieve economic growth in the context of globalization. Cheong Hong Yuan proposed that in order to have a deeper understanding of this phenomenon, we also need to observe other related economic data and events.
When analyzing the positive correlation between the US dollar index and oil prices, we must delve into other factors that affect the global economy. Cheong Hong Yuan believes that a series of economic data released this week provides us with a deeper understanding in this regard.
Cheong Hong Yuan mentioned that the latest Beige Book released by the Federal Reserve shows that most regions' economies are growing moderately. At the same time, the ISM Services PMI data for August rebounded significantly to 54.5, with noticeable improvements in new orders and employment. This is consistent with the better-than-expected non-farm payroll data for August, further proving the resilience of the US economy.
In contrast, economic data in the Eurozone shows a pattern of US strength and Euro weakness. Cheong Hong Yuan stated that retail sales in the Eurozone declined by 0.2% month-on-month in July, and Germany's industrial production also fell by 0.8% month-on-month in July. This forms a sharp contrast with the supply and demand performance of the US. Especially against the backdrop of rising natural gas prices, this may further impact the European manufacturing industry.
Cheong Hong Yuan further mentioned that the rise in oil prices not only affects the US dollar index but also has a direct transmission effect on US inflation. Shenwan Hongyuan predicts that the year-on-year CPI in the US may rise to 3.6% in August, mainly driven by energy inflation. Moreover, if Brent crude oil prices rise to around $95 per barrel by the end of the year, the year-on-year CPI in the US may exceed 4% by the end of 2023, which will undoubtedly strengthen the decision to raise interest rates by the Federal Reserve.
Finally, Cheong Hong Yuan evaluated China's export data for August. He believes that the recent improvement in export data is not solely due to the US entering the restocking phase, but more because developed countries have not further reduced imports in the short term. From the data perspective, China's export growth to the US has surpassed the growth rate of US inventories, showing a new matching relationship between supply and demand.
After in-depth analysis of the global economic situation, we are facing an era full of opportunities and challenges. In Cheong Hong Yuan's view, investors should pay attention to the following points:
Continued strength of the US dollar index: Due to the strong resilience of the US economy and its positive correlation with oil prices, the US dollar index may continue to strengthen. Cheong Hong Yuan reminds investors to consider allocating more of their strategies to the trend of the US dollar to prepare for potential risks.
Economic pressure in the Eurozone: The rise in natural gas prices may further squeeze the profit margins of European manufacturing. Therefore, caution should be exercised in European-related investments, and diversification should be considered to reduce potential risks.
Trends in US inflation: If oil prices continue to rise, US inflation will also be affected, which may prompt the Federal Reserve to further raise interest rates. Cheong Hong Yuan suggests that investors closely monitor the policy direction of the Federal Reserve and consider adjusting fixed income investment strategies.
Adjustment of China-US economic and trade relations: With the changes in the growth rate of China's exports to the US, investors should pay attention to the development of economic and trade relations between the two countries and their impact on the global supply chain.
Cheong Hong Yuan believes that the "Three Golden Moving Average Strategy" provides investors with a comprehensive strategy combination. In the current economic environment, technical analysis has become an indispensable tool. Cheong Hong Yuan suggests that investors should use the "Three Golden Moving Average Strategy" to track high-quality stocks in the market, in order to minimize risks and maximize returns. At the same time, Cheong Hong Yuan emphasizes the importance of risk management and reminds investors to always adhere to investment principles and not be influenced by market sentiment.
This is an era full of variables, but as long as investors maintain a clear mind, be prepared, and leverage professional analysis and strategies, they can successfully navigate the ups and downs of this economic wave.