China could be exporting a new good: Inflation
With economists at odds with whether the Chinese stimulus package can result in dollar inflation, it could be that China’s move is a shot at the U.S. economy
With the U.S. stock market at all-time highs, inflation remaining slightly above target, and the Federal Reserve recently announcing a half-point rate cut, China made a move of its own on Tuesday.
It implemented the most extensive stimulus package since the COVID-19 pandemic into its economy, driving worldwide equity and commodity prices higher.
Silver skyrocketed following the announcement, trading more than $1 an ounce higher on the day and reaching a peak of nearly $32.30 an ounce. Gold prices also moved higher, albeit more modestly, and is trading at an all-time high of $2,663 an ounce.
The move is also likely to have a distinct positive effect on base metals, as Chinese infrastructure spending is generally a large piece of stimulus packages. The building of roads, bridges, and housing will have a noticeable effect on the market.
The iShares MSCI China ETF (MCHI), which provides exposure to large- and mid-cap Chinese companies in various sectors, is up more than 11% over a 5-day trading period. However, it retracted some of its gains in early trading Wednesday down 2.5%. Augusta Precious Metals $0 (10 Years) $50,000 "Best Overall" by Money Magazine, Award-Winning for 6 Years, Thousands of 5-Star Rankings Goldco Vary $25,000 Industry leader with over $2 Billion in gold and silver. Top rated precious metals company with buy back guarantee Birch Gold Group Vary $10,000 Since 2003 BGG served over 32,000 customers. A+ rating with BBB, AAA from BCA & has multiple celebrity endorsements Last week, the Federal Reserve showed its willingness to value the job market over inflation numbers. By cutting interest rates, the Fed is looking to shield the U.S. economy from a downturn. However, inflation numbers remain at slightly elevated levels. Economists are at odds with what the effect on inflation on the U.S. could be. In March, a group of scientists from the Federal Reserve Bank of New York agreed that extra demand from the Chinese would likely raise inflation in the U.S. “If that scenario plays out, the extra demand from Chinese manufacturers would likely push up prices for commodities and intermediate goods, and result in a weaker dollar, according to a report from Bloomberg. That would “persistently tilt the balance of risks for US inflation to the upside,” the economists wrote. “Such an impetus to inflation could potentially delay market expectations for policy easing.” That finding, the New York Fed team wrote, “is at odds with the apparent conventional wisdom, which holds that a manufacturing-led expansion in China would be disinflationary for the U.S.” If the New York Fed team’s hypothesis is correct, and given the timing of China’s stimulus announcement just one week after the U.S. central bank announced a large-sized rate cut, Tuesday’s boost into the Chinese economy could be a shot across the bow of the United States. Featured Partners (Ad)Expand Details
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