This week sees several noteworthy events taking place that will likely cause a lot of speculation and hyperbole in the crypto media but will do little to the market in the short term. China’s economic approach remains in the spotlight as Beijing cuts rates; meanwhile, all eyes are on the BRICS summit in South Africa and Jerome Powell’s annual remarks at Jackson Hole.
Last week, most people were taken off guard by the sudden interest rate cut by the People’s Bank of China (PBoC). We weren’t surprised because two weeks ago we explained that China was about to implement a policy to stimulate its economy.
Some analysts cried doom, interpreting this as the twilight of China’s economic might. However, viewing these moves through the lens of the ongoing U.S.-China trade impasse is crucial.
The animosity between the two giants intensified after President Xi Jinping’s decision to lift covid restrictions last year. Apprehensive about China regaining its economic momentum, the U.S. retaliated with stringent sanctions and pressured U.S. buyers to source products from Vietnam rather than China. The consequences are that unemployment remains high, people are holding onto savings, and therefore the interest in buying property has plummeted.
While some in the crypto-media interpret this as a potential meltdown for global markets, the opposite may be true. A softer Chinese monetary policy could be a windfall, particularly with Hong Kong opening up to crypto once more.
Amid these developments, the BRICS consortium’s summit takes place this week. A popular narrative within cryptocurrency circles is that as BRICS unveils a gold-backed currency, it will cause the sudden downfall of the U.S. Dollar. While such an instrument could foster intra-BRICS trade, it’s a stretch to think it could replace the U.S. Dollar’s global reserve currency status.
However, the wild card in this deck is Saudi Arabia. Their plan to join the group will affect the global markets over the long term. According to sources inside the Saudi government, whether they will join the group during this year’s summit is still being determined.
The Crown Prince of Saudi Arabia, Mohammed bin Salman Al Saud, is keen to join as soon as possible because he has grown tired of the disrespect he feels the U.S. has shown his country. They’re weighing the decision to join now or wait until after the 2024 U.S. election, although it’s very likely the Crown Prince will succeed in joining BRICS this week.
Should Saudi Arabia join BRICS, the ramifications could be seismic. It would cause a tangible tilt in global power dynamics that could cast a long shadow on the dollar’s global supremacy.
At the end of the week, the U.S. Federal Reserve will hold its annual economic symposium at Jackson Hole in Wyoming. The event attracts central bankers worldwide and is a chance to decide on a blueprint for the coming year.
During last year’s meeting, central bankers agreed to raise interest rates to curb inflation, regardless of whether it would push their countries into recession. Since then, they have been united in this approach.
While some may be looking for signs of a pivot or positive news from Jackson Hole, the outcome is unlikely to be bullish. Markets have already priced in one or two more interest rate hikes for the remainder of the year and expect a rate reduction in mid-2024 at the very earliest.
Although this week is rife with decisions that theoretically possess the gravitational pull to move the markets, in all probability, they will do little. The market’s dance will likely continue: rhythmic lateral moves punctuated by erratic spikes and plunges, often with little rhyme or reason.
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