Recently, the most concerning topic for everyone was when the Federal Reserve would stop raising interest rates, and now the focus has shifted to when the U.S. Congress will increase the debt ceiling. However, the latest news indicates that both of these aspects bring bad news.
The U.S. debt ceiling negotiations, which resumed this week, have reached an impasse, with the possibility of talks breaking down at any moment. There is only one week left before the U.S. defaults on its debt.
On the other hand, several officials from the Federal Reserve have stated that the interest rate hike cycle will continue. Global financial markets are experiencing turmoil and unease.
01. U.S. stocks have fallen by 736 points
Since the resumption of U.S. debt negotiations this week, the Dow Jones Industrial Average has fallen for three consecutive days, with a total weekly drop of 736 points. In fact, since entering May, the U.S. stock market has shifted from rising to falling, with the Dow Jones Industrial Average having fallen by 1,298 points so far this month.
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In addition, the S&P 500 index has also fallen by 1.3% in May. However, the Nasdaq Composite Index has miraculously risen by 2.11%, but it has also experienced a significant decline this week.Not only are the U.S. stock markets experiencing turbulence, but the global stock markets have also been affected, with major European indices falling across the board, and the general decline exceeding 1.5%, even reaching 2%.
During yesterday's daytime, Asian stock markets also fell across the board, with Japan, South Korea, Hong Kong, and China's A-shares almost all in the red.
Now everyone is waiting for the results of the U.S. debt negotiations.
02, Crisis Escalation
However, it is clear that all parties in the United States have not yet reached a final consensus on raising the debt ceiling, and it can even be said that the negotiations have reached an impasse. Representatives involved in the negotiations pointed out that due to the unwillingness of all parties to give up their conditions, the negotiations are very likely to break down again.
According to the warning from U.S. Treasury Secretary Yellen earlier, the U.S. debt may default on June 1st. Therefore, the U.S. debt maturing at the beginning of June has seen its discount yield rise to a new high, breaking through 6%. This yield is even higher than the yield of some junk bonds in the U.S. bond market.
It indicates that all holders are continuously selling U.S. debt to avoid possible losses.
But now it seems that the rise in U.S. debt yields has not reached its end, as the Federal Reserve has not yet promised to stop raising interest rates.
On the contrary, the remarks of some Federal Reserve officials have further escalated the crisis.
As pointed out by a Federal Reserve governor, it is possible to raise interest rates in June or to pause, but even if interest rates are not raised in June, it may still be necessary to continue raising interest rates later. At present, it seems that this round of interest rate hikes is far from over, and core inflation indicators are still at high levels.03, The Opportunity for the Renminbi
As the U.S. debt faces a critical test, the United States is striving to boost the value of the dollar to prevent a catastrophic collapse. This has also led to a noticeable decline in the exchange rate of the renminbi against the dollar in the past two weeks. In light of this, does the renminbi still have a chance to replace the dollar?
In fact, replacing the dollar is not our current goal, and there has never been any official statement to that effect. Although the United States is currently facing various crises and the status of the dollar has been shaken, the economic strength of the United States remains very strong, and the U.S. economy has not collapsed.
For the renminbi to replace the dollar, it would need to make significant developmental efforts in many areas, and it is not realistic to consider this topic at present. Firstly, although China's financial market is developing, it still cannot compare with that of the United States. Additionally, China needs to continue to expand its economic openness to the outside world, engage in greater free trade, and investment.
Lastly, the global circulation of the renminbi is still significantly restricted, and China's capital account has not yet been opened.However, taking advantage of the current critical moment in the United States, we seize the opportunity to enhance the international status of the Chinese yuan, promote the development of China's foreign trade, and increase China's influence, which is very necessary.