Updated: Nov 26, 2021
(Updated 21 June 2021)
For any distressed economy, all central banks will try to inject liquidity (money supply) into the market primarily by setting low interest rate (monetary policy) or giving out stimulus packages such as putting cash in public's pocket (fiscal policy).
When you have plenty of liquidity 💲 in the system, higher consumption will take place as long as people still have jobs and confidence level remains high.
Higher consumption will lead to higher price of goods including oil prices which translate into higher inflation rate. 💹
By looking at the bond yield (increasing due to speculation) and uptrend of ongoing inflation rate, market is spooked 👻 as market is anticipating the central bank to increase the interest much earlier than anticipated.
This is nothing new in every economic recovery and we already knew that US economy has already opened up and encouraging fundamental data is supporting the recovery.
Now, speculation phase will start to kick in until federal reserve rises the interest rate.
As long as speculation continues, stock market movement will become an intermittent roller coaster ride.🎢
The image ☝☝ also shows that whenever US raises interest rates, stock market did well. This is due to "normalizing" effect as the Feds increased them on a gradual basis.
However, if the inflation rate moves up a lot faster 🛑 than the interest rate can catch up, then the Feds will have to increase the interest rate a lot more. Then stock market will have a negative effect. This, we have to monitor on an ongoing basis.
In the meantime, business as usual. Fundamentals are still strong. Noises will come and go for the time being.
However, for Bond Outlook, this is another story. More on this later. To be continued........
🔸This was prepared by VKA Wealth Planners Sdn. Bhd.
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