To The Moon

Total global inflows ticked up by $2.5bn month-on-month to $49.4bn in August. The US stock market led the way, with net inflows jumping from $12.6bn in July to $30.2bn.

1.Dollar Surged & US Fund Inflows

Stronger U.S. macroeconomic data, coupled with the continued hawkishness of FED decisions,The dollar$USD Index(USDindex.FOREX)$, which is regarded as a safe-haven asset for global investors, has surged to a 20-year high.

Welcome to Read：Dollar Index Hit 20-Year High! How to invest USD with USD?

The rally dragged other currencies around the world to their lowest levels in decades, including the yen, euro and pound. When the dollar is higher, that makes U.S. stock returns more attractive relative to local securities.

Jerry Braakman, president and chief investment officer at First American Trust, said,

he's looking for safety in Treasuries, cash and defensive stocks this year. He also said he does not plan to increase his exposure to international stocks in emerging markets, China, Japan and Europe in the short term.

U.S. Fund Inflow Returns

Source: Refinitiv Lipper

According to Refinitiv Lipper data, Investors have increased their exposure to U.S.-focused equity funds and mutual funds in four of the past six weeks, while pulling out of international equity funds for the 20th week in a row, — the most since 2019. It was the longest run since the 22-week run of outflows that ended in October 2019.

There is no direct correspondence between the strength dollar and US stocks, and the two may be positively or negatively correlated.

• First, if the dollar continues to rise moderately and the U.S. economy is growing strongly, the momentum of economic expansion and the return of the U.S. dollar will push up both the U.S. dollar and U.S. stocks, and vice versa.
• Second, if the dollar rises due to safe-haven demand, the dollar will rise and US stocks will fall.
• Third, if the U.S. dollar rises due to interest rate hikes, it will have an impact in the short term and cause U.S. stocks to fall. In the medium term, it depends on the economic situation; if the U.S. dollar falls due to interest rate cuts, it will affect U.S. stocks in the short term and cause U.S. stocks to rise. In the medium term, it also depends on the economic data.

For now, the third scenario is more in line with this market. Investors are so confident as they believe that even if a recession occurs, it is unlikely to be severe or long-term. Consumer spending remains resilient despite inflation pushing up prices. Some price pressures appear to have peaked.

2. EUR & European Investments

The euro traded lower, with the euro $EUR/USD(EURUSD.FOREX)$down 13% against the dollar this year, approaching its lowest level since 2012.

Challenges in Europe include soaring gas and electricity prices due to supply shortages caused by the war in Ukraine. In addition, in response to the threat of inflation and slowing economic growth, the European Central Bank raised interest rates by half a percentage point in July. The rate hike exceeded expectations and ended the EU's eight-year negative interest rate situation.

Many economists expect the central bank to raise rates by another half a percentage point this week. You may interested to read：50 bps? 5 Focuses of ECB's Rate Hike on Thursday

European Equity Outflows

Investors pulled money from European ETFs in August at the fastest pace since the 2016 Brexit referendum as fears of recession mounted.

The $7.7bn withdrawn from the sector was the sixth straight month of net outflows, and second only to the $8.9bn of net selling recorded in July 2016, according to data from BlackRock, reflecting the darkening sentiment across the continent.

Global fund managers appear to be making similar bets, according to a recent survey by Bank of America Co., BAC.

In August, 34% of respondents said they were underweight EU stocks, while 10% said they were underweight EU stocks. Overweight U.S. equities. This is a reversal from January, when 35% of respondents were overweight EU equities and 5% were underweight U.S. equities.

3, CNH and China Investment

On the 6th September, the offshore $CNH/USD(CNHUSD.FOREX)$against the US dollar fell below the 6.97 mark, continuing to hit a new low since August 2020. If the dollar continues to strengthen, the RMB exchange rate may break 7. The dollar has appreciated by 14.6% this year, and the renminbi has also depreciated by about 8%, but compared with other non-dollar currencies, the depreciation is the smallest.

China is also facing difficulties. The world's second-largest economy is grappling with the economic fallout from multiple headwinds, including the Covid-19 pandemic, a downturn in the real estate sector, heavy regulation of tech companies and severe weather. These headwinds hurt sectors including manufacturing activity and Chinese tech stocks, with $TENCENT(00700)$ , $Tencent Holding Ltd.(TCEHY)$ , $Alibaba(BABA)$ , $Alibaba(09988)$ down 14% since mid-June.

China's economic recovery is still weak, and the exports are one of the few important drivers that continue to drive economic growth. Europe and the United States are China's largest foreign trade partners. The economic recession in Europe and the macro changes in the United States may directly impact the demand for China's exports. If the follow-up export accelerates to fall, it may intensify the downward pressure on China's economy, and it is not ruled out that institutions will be further bullish on interest rates because of this.

The China’s government data had show foreign investment into the economy grew by almost a fifth this year, and much of the investment into China actually comes from Hong Kong,Three quarters of inbound FDI was from Hong Kong last year.

Source: Bloomberg

The data also show that three-quarters of the new investment into China has gone into services industries, rather than the crucial manufacturing sector, which the government is promoting to transition the economy toward higher-value production.

4, JPY and Japan Government Bonds Shorting

The Japanese yen $JPY/USD(JPYUSD.FOREX)$has fallen more than 19% in 2022. A renewed sell-off in U.S. Treasuries in September widened the U.S.-Japan yield gap, pushing the dollar higher and the yen to a 24-year low.

The dollar rose above 143 yen against the yen for the first time since 1998 on Tuesday, with analysts saying that Bank of Japan Governor Haruhiko Kuroda will come under pressure to ignore the global trend of rising interest rates and Prime Minister Fumio Kishida's support for his stance.

While the Bank of Japan is "holding its hands", Fed Chairman Powell continued to "fly hawks" at the recent Jackson Hole meeting. Markets are now speculating that the Fed will raise interest rates by 75 basis points for the third time in a row this month. In contrast, the Bank of Japan appears "out of place".

Goldman Sachs analyst Kamakshya Trivedi believes

the dollar-yen exchange rate could rise to 145 within three months as interest rate spreads widen as long as the Fed continues to tighten policy, considering that the Bank of Japan is likely to remain on hold.

The slump in global bond markets following the Jackson Hole annual meeting has revived focus on funds that shorting Japanese government bonds.

AllianceBernstein and GAMA Asset Management joined fund giants shorting or underweight Japanese government bonds, betting that the Bank of Japan will have to loosen its iron grip on yields as soaring inflation hits bonds everywhere.

If comes the exchange  and debt double-killed, the Japanese financial system may usher in a crit.