US-China Strategic Competition Unchecked is Headed For Disaster

China-U.S. Relations

Summary:

The world's two largest powers are on a collision course. Strategic competition between the United States and China is ratcheting up, driven by both countries' nationalism and psychologies of exceptionalism and righteousness which make it difficult to show weakness or back down in the face of perceived affronts to their dignity or interests.

Guardrails that protect against deterioration of bilateral relations, and even armed conflict, are being dismantled. Earlier hopes of cooperation, at least on global collective action problems like pandemic management and recovery and climate change, have all but disappeared. The inflationary and other economic costs of trade and technology decoupling are being disregarded.

There's plenty of blame to go around. President Xi Jinping doing away with term limits and taking China down a path of illiberalism is no longer a matter for China alone given its share of the global economy and integration into it. The global market has never had to manage an economy of the size of China with a political system that's daily becoming more opaque. China is no longer hiding and biding its time and its assertive behaviour and attempts to influence other countries have shown a nasty side of power.

For its part, the United States has traded leadership of the global commons for a policy of undermining the system, which it thinks it may favour China. The trade war has been escalated into full economic warfare with extraterritorial unilateral sanctions on what are said to be strategically important semiconductors that have the goal of crimping China's technological rise.

Everything is now cast in zero-sum terms, even what one would think are obvious collective action problems like mitigating and managing the existential risks from climate change. There used to be offramps to strategic competition: even after the start of the Trump trade war, both the United States and China were willing to do deals like the Phase One trade agreement (as damaging as that was to other countries, including dependable US allies like Australia). Amazingly, the potential for cooperation and positive-sum competition seems to have deteriorated even further after Trump.

Neither Washington nor Beijing appears to recognise each other's clear reaction function to the other. Either that or they do, and are deliberately trying to raise the temperature to induce the other into provocation that might justify a showdown.

The exercise of sovereign agency for its own sake — without respect for the wishes of the other party — might feel good. But it makes the world a more dangerous place. Positive outcomes are what matter, not conformance to the equivalence of some non-existent self-idealisation.

US House of Representatives Speaker Nancy Pelosi's visit to Taiwan and former Australian Foreign Minister Marise Payne's call for an investigation with 'weapons inspector-like' powers into the Wuhan coronavirus outbreak are both prime examples of achieving the opposite of a policy's ostensible goal. Taiwan's democracy is no safer after Pelosi's visit. After Australia's investigation proposal China predictably became defensive and Australia made it harder to secure Western involvement in investigations into the origins of COVID-19.

Chinese officials may believe they are aggrieved and need to better assert their position to the world. But wolf warrior diplomacy has been a disaster for China's standing in the global community. China has managed to unite elites and ordinary people in the West and even much of the non-aligned world into hardening positions against it.

As Jia Qingguo argues in this week's lead essay, 'the kind of role China will play in regional security cooperation … does not depend on China alone'. There's a reaction function in both directions that's not difficult to see. 'How China approaches regional security cooperation depends not just on China's own actions, but on how the United States and its allies address China's legitimate security concerns'. This does not mean, he quickly adds, that 'what China says and does do not matter. It does'.

This suggests a role for US allies like Australia, Japan, South Korea and Singapore that are stuck in the middle of strategic competition across the Pacific.

Australia and Japan in particular have a fear of abandonment from their US ally that leads some of their leaders to egg on their American security guarantor as it intensifies strategic competition with China. It's a dangerous game: in Australia, loose talk of war from some politicians and commentators and a sensationalist media has led to polls showing one in ten Australians think China will attack Australia soon. Only one in twenty Taiwanese expect China to invade Taiwan with five times as many Australians — nearly one in four — thinking that China will soon attack Taiwan.

Tensions have risen during the COVID-19 pandemic — within households, in society and between countries — aggravating growing structural schisms. General anxiety and the inability to travel and engage have made others more distant and alien. China's zero-COVID policies and closed borders have meant that communication has been even harder between China and the rest of the world. Relations between China and the West are rife with deepening misunderstanding. Chinese academics and officials find it difficult to travel abroad in normal times; this is a bigger problem now just as the world becomes more anxious about China's rise.

Jia has been an advocate in China of more open international communication. He argues that 'China must try to explain its positions and reassure others about its strategic intentions'. And, he suggests, 'that China should also do more to demonstrate what it means in policy terms by its dedication to "building a community of shared futures". Specifically on regional security cooperation, China can do more to convince other regional players that a stronger China is an asset, not a liability or a threat'.

That would help with some of the anxieties among US allies and other countries. It may even help the discovery of pathways towards cooperation. There are many shared interests and, in particular, the world desperately needs China and the United States, the world's two largest carbon emitters, to work together on the scourge of climate change and its damage to the global commons.

None of that will be easy when the line between economics and security is blurred and almost everything is seen as a 'you win—I lose' game. German Chancellor Olaf Scholz and Chinese President Xi may have just shifted the dial on this a little over the last few days.

Source: eastasiaforum

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Samantha Luan

Commodity

Energy - China crude oil imports increase

ICE Brent rallied to its highest levels since late August on Friday, leaving the market in striking distance of US$100/bbl. A weaker USD also provided a boost to oil and the broader commodities complex. It was further unverified reports of China looking to ease its zero-Covid policy which really provided the boost to markets.It appears these reports were nothing more than a rumour, after the National Health Commission said that China will stick to its zero-Covid policy. Unsurprisingly, oil markets opened lower this morning, following these comments.

The latest trade data from China shows that crude oil imports in October averaged 10.2MMbbls/d, up from 9.83MMbbls/d in September and 8.9MMbbls/d in October last year. It is the strongest monthly imports since May, when 10.83MMbbls/d of inflows were seen. Crude oil imports over the first ten months of the year are still down 2.7% YoY to average 9.97MMbbls/d. Demand this year has been largely under pressure due to China's zero-Covid policy.

The Saudis released their latest official selling prices (OSPs) for December loadings at the end of last week, which saw reductions for almost all grades into Asia. This includes cutting Arab Light into Asia by US$0.40/bbl to US$5.45/bbl over the benchmark. Meanwhile, all grades to the US were left unchanged for the month, whilst all grades into Europe were increased with the exception of Arab Medium which was unchanged.

Speculators appear to have a growing appetite for the oil market. The managed money net long in ICE Brent increased by 22,214 lots over the last reporting week to leave them with a net long of 227,665 lots as of last Tuesday- the largest net long since June. Speculators appear to be getting increasingly constructive on the oil market likely due to the expectation that the market will tighten due to a combination of the EU ban on Russian oil soon coming into effect as well as OPEC+ supply cuts.

Commercial operations have begun at the first stage of the 615Mbbls/d Al-Zour refinery in Kuwait and the refinery could reach full capacity in early 2023. This would leave total Kuwaiti refining capacity at a little over 1.4MMbbls/d. Additional refining capacity would come as a relief to product markets, particularly middle distillates, which have been extremely tight this year.

Metals – USD weakness & Covid speculation boost metals

Industrial metals rallied amid China reopening speculation, whilst USD weakness would have provided further upside. LME copper managed to settle more than 7% higher on Friday as a result. However, clarification from China's National Health Commission that the zero-covid policy will remain in place has unsurprisingly seen base metals trade lower this morning.

Zinc prices rose more than 5.6% on Friday- its largest gain since August. The latest data from the Shanghai Futures Exchange (SHFE) showed that exchange inventories declined 44% WoW (the biggest weekly drop since 2007) to 24.9kt (lowest since December 2018) as of Friday. SHFE contracts for nearby delivery traded at huge premiums to later-dated futures, resulting in a widening backwardation.

Agriculture – India announces sugar export quota

The Indian government finally announced sugar export quotas for the current 2022/23 marketing year. Domestic mills can export up to 6m tonnes of sugar through until the 31 May 2023. Given that this only covers a portion of the season, we could very well see the government issue further export quotas for the remainder of the season (June-September) at a later stage. There have been reports that a second tranche could be in the region of 3m tonnes, depending on how the current crop evolves. In the 2021/22 season, the sugar export quota totaled 11.2m tonnes.

CBOT wheat remained volatile with mounting production concerns in Australia and Argentina. There are suggestions that excessive rains and flooding in the major wheat-growing areas in Australia have lowered expectations of a record high-quality crop. Meanwhile, the Buenos Aires grains exchange revised its forecasts for Argentina's 2022/23 wheat harvest further to 14mt last week, down from a previous forecast of 15.2mt and initial expectations of 20.5mt. The downward revision was primarily due to a prolonged drought, worsened by extended frosts over the main wheat-producing region.

The latest CFTC data shows that money managers continued to build net longs in CBOT soybean for a third consecutive week, adding 25,918 lots and leaving them with a net long position of 101,329 lots as of 1 November. Meanwhile, speculative net longs in CBOT corn increased for a second consecutive week by 7,586 lots, taking the net long to 271,960 lots.

Source: ING

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Devin

Forex

High atop a rocky hill in the occupied West Bank, Israeli settlers exhilarated by a resounding right-wing election triumph surveyed a landscape dotted with Palestinian villages, scouting new spots to put down roots.

The Nov. 1 ballot saw Religious Zionism, a hard-line settler party, soar to third place in parliament, positioning it as a potential powerful partner in Benjamin Netanyahu's likely coalition. Negotiations started on Sunday and could take weeks.

But among ideological settlers who see themselves as pioneers redeeming Biblical heartland promised by God, hopes are already high for budgets, construction and infrastructure to keep their enterprise thriving.

"Our expectations are great," said Daniella Weiss, a veteran settler who led the tiny scouting mission. "This government is better for the Jews than it is for the Arabs. That's the name of the game."

Weiss described the election results as a revolution. "As a person heading a settlement movement, it's a victory," she said. "I have no doubt there will be acceleration in development of the settlements."

Most world powers deem settlements built in the territory Israel seized in the 1967 war as illegal under international law and their expansion as an obstacle to peace, since they eat away at land the Palestinians claim for a future state.

With peace talks establishing for such state in the West Bank, Gaza and east Jerusalem dormant since 2014, and with no sign of their revival, Netanyahu's likely government has simply darkened an already bleak Palestinian view.

"There will be an increase in settlement activity and that will close the door for any political solution," said Wasel Abu Youssef of the Palestine Liberation Organization (PLO).

Netanyahu

Israel disputes the illegality of the settlements and cites Biblical and historical ties to the West Bank, which it calls by its Biblical name - Judea and Samaria.

"I sense a chill down my spine coming back to the very places where my ancestors lived," said Baruch Gordon from the settlement of Bet El, where Religious Zionism election banners dot the streets.

"It's our ancestral rightful homeland," said Gordon, who hopes to see Israel extending sovereignty to the territory, which would be a de-facto annexation.

More than 450,000 people, or less than 5% of Israel's population, are Jewish settlers in the West Bank, home to about 3 million Palestinians who exercise limited self-rule there.

Settlers driven ideologically to the smaller enclaves, deep in the territory, are a minority of the settler population. But they are nonetheless a powerful political force, in Netanyahu's Likud party too.

At the Bet El religious seminary, where Gordon works as development director, the male students broke out in song and dance on election night, when the results came through.

About 80% of Bet El's votes went to Religious Zionism, data from the Knesset's election committee showed, and almost 10% to Netanyahu's Likud.

Set for a record sixth term in office, Netanyahu has allied himself with Religious Zionism, which advocates annexation of settlements, a pledge he made in 2020 before dropping it in return for normalising ties with the United Arab Emirates.

That deal, extended soon after to Bahrain, was mediated by former U.S. President Donald Trump, whose administration saw Netanyahu's 2015-2019 solid right-wing government increasing investment in settlement development.

With the Biden administration, which has been far sharper in its stance against settlements, Netanyahu will have to walk a tightrope between his own emerging coalition and the White House.

But settlers are unfazed. Yigal Dilmoni, chief executive of the settlers' main umbrella organisation, said he expected Netanyahu to step up settlement development while cracking down on Palestinian construction carried out without Israeli permits.

Netanyahu, said Dilmoni, was an astute statesman capable of sorting out any related diplomatic rift, adding that in any case, annexation was merely a matter of time.

"If it doesn't happen tomorrow morning, it will happen in 10 or 15 years. We're in no rush," said Dilmoni.

Source: Reuters

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Owen Li

Economic

China's exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020, as a perfect storm of COVID curbs at home and global recession risks dented demand and further darkened the outlook for a struggling economy.

The bleak data highlights the challenge for policymakers in China as they press on with pandemic prevention measures and try to navigate broad pressure from surging inflation, sweeping increases in worldwide interest rates and a global slowdown.

Outbound shipments in October shrank 0.3% from a year earlier, a sharp turnaround from a 5.7% gain in September, official data showed on Monday, and well below analysts' expectations for a 4.3% increase. It was the worst performance since May 2020.

The data suggests demand remains frail overall, and analysts warn of further gloom for exporters over the coming quarters, heaping more pressure on the country's manufacturing sector and the world's second-biggest economy grappling with persistent COVID-19 curbs and protracted property weakness.

Chinese exporters weren't even able to capitalise on a prolonged weakening in the yuan currency since April and the key year-end shopping season, underlining the broadening strains for consumers and businesses worldwide.

The yuan on Monday eased from a more than one-week high against the dollar reached in the previous session, as the weak trade data and Beijing's vow to continue with its strict zero-COVID strategy hurt sentiment.

"The weak export growth likely reflects both poor external demand as well as the supply disruptions due to COVID outbreaks," said Zhiwei Zhang, chief economist at Pinpoint Asset Management, citing COVID disruptions at a Foxconn factory, a major Apple supplier, as one example.

Apple Inc said it expects lower-than-anticipated shipments of high-end iPhone 14 models following a key production cut at the virus-blighted Zhengzhou plant.

"Looking forward, we think exports will fall further over the coming quarters... We think that aggressive financial tightening and the drag on real incomes from high inflation will push the global economy into a recession next year," said Zichun Huang, economist at Capital Economics.

Growth of auto exports in terms of volume also slowed sharply to 60% year-on-year from 106% in September, according to Reuters calculations based on customs data, reflecting a transition from demand for goods to services in major economies.

Domestic Woes Hamper Growth

Almost three years into the pandemic, China has stuck to a strict COVID-19 containment policy that has exacted a heavy economic toll and caused widespread frustration and fatigue.

Feeble October factory and trade figures suggested the economy is struggling to get out of the mire in the last quarter of 2022, after it reported a faster-than-anticipated rebound in the third quarter.

The Ukraine war, which sparked a surge in already high inflation globally, has added to geopolitical tensions and further dampened business activity.

Chinese policymakers pledged last week to prioritise economic growth and press on with reforms, easing fears that ideology could take precedence as President Xi Jinping began a new leadership term and disruptive lockdowns continued with no clear exit strategy in sight.

Tepid domestic demand, partly weighed down by fresh COVID curbs and lockdowns in October, hurt importers.

Inbound shipments declined 0.7% from a 0.3% gain in September, below a forecast 0.1% increase, marking the weakest outcome since August 2020.

The harsh impact on demand from strict pandemic measures and a property slump was also highlighted in a broad range of Chinese imports; purchases of soybeans declined to eight-year-lows last month while copper and coal imports also fell.

On top of the global slowdown, frail domestic consumption will put more strain on China's economy for a while yet, analysts say.

"Insufficient domestic demand is the main constraint on China's short-term recovery and long-term growth trajectory," said Bruce Pang, chief economist at Jones Lang Lasalle.

Source: Reuters

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Thomas

Economic

Indonesia's economy expanded faster than expected in the third quarter, giving the central bank room to tighten policy further as consumption stayed resilient despite price pressures and higher borrowing costs.

Gross domestic product rose 5.72% in the three months to September from a year ago, the statistics office said Monday. That's the fastest increase in more than a year and beats the median estimate of a 5.6% gain in a Bloomberg survey. Output expanded 1.81% from the previous quarter, against the consensus for a 1.71% rise.

Southeast Asia's largest economy sustained its growth momentum, against the backdrop of higher fuel prices seen to stoke inflation near a seven-year high and add pressure on Bank Indonesia to keep hiking. BI, which has raised the policy rate by 125 basis points since August, including two, half-point hikes to 4.75%, is scheduled to meet on Nov. 17.

Indonesia's accelerating growth in the third quarter defied headwinds from higher inflation. The faster-than-expected expansion gives Bank Indonesia room to continue hiking rates to shore up the rupiah, though we also expect it to continue buying bonds to mitigate the risk of slower momentum ahead -Tamara Henderson, Asean economist.

Private consumption-- which accounts for more than half of domestic output -- rose 5.39% last quarter, though slightly slower than the 5.51% in the April-June period. Middle and upper-class consumption strengthened, while spending among the lower-income segment was supported by government's social aid, said Margo Yuwono, head of the nation's statistics office.

The boom in commodity exports continued to bolster the nation's external trade, even as imports gained pace on capital goods demand to support business activities. Foreign direct investment surged to a record last quarter as the government pushed for more downstream projects in nickel, copper and other resources.

Elbow room

A darkening outlook on the global economy and higher borrowing costs could yet weigh on Indonesia's growth prospects. With the Federal Reserve set on aggressive monetary tightening, the rupiah is trading near two-year lows, raising the risk of imported inflation.

The benchmark stock index extended gains after the announcement while the local currency rose and is poised to halt five days of declines.

"A comfortable growth backdrop provides the central bank the headroom to focus on inflationary expectations and keep currency underperformance in check through further rate hikes," said DBS Bank Ltd. economist Radhika Rao, who expects policy makers to deliver a third consecutive half-point increase at next week's rate meeting.

Source: Bloomberg

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Ukadike Micheal

Cryptocurrency

Cryptocurrencies are becoming increasingly dependent on the macroeconomic environment of which they inevitably become a part. Unfortunately, current inflation rates in the United States, Europe, and many other countries around the world make this environment hardly encouraging for investment. However, the specter of recession, rising consumer prices, and loss of purchasing power by fiat are causing investors to seek an escape from inflation.

For years, there has been a strong narrative describing Bitcoin (BTC) as one of the best hedges against inflation. The parabolic rise of cryptocurrencies combined with the increasingly weakening purchasing power of fiat currencies only added fuel to this interpretation. However, the argument strength of advocates of the oldest and largest cryptocurrency has weakened in the trajectory of the year-long bear market.

Can the thesis that Bitcoin is an inflation hedge still be defended in 2022? Does the correlation with traditional and technology markets make us treat BTC as another risk-on asset? Or should we return to the narrative from the previous bull market that Bitcoin is digital gold and the safe haven of blockchain technology?

Bitcoin is a hedge against inflation – why such a promise?

Why should Bitcoin be considered a hedge against inflation at all? There are at least two groups of arguments used to justify this thesis.

The first concerns the fundamental properties of Bitcoin. Unlike fiat currencies, BTC has a very transparent monetary policy that is not dependent on any individual entity, commission, or central bank. Bitcoin cannot be "printed" as its total supply has been cryptographically fixed at 21 million BTC.

Subsequently, Bitcoin's inflation rate – yes, BTC is not deflationary, as some people believe – remains at a stable, low level. It currently stands at around 1.8% per year. These levels are predetermined and cannot be changed. Moreover, Bitcoin's inflation rate decreases every 4 years or so with successive halvings. Each such event, of which there have been 3 so far in Bitcoin's 13-year history, halves the inflation level. Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_1

Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_1

No institution, individual miner, or BTC whale not only has the power to change this but also has no interest in a potential modification. Bitcoin's monetary policy is doubly protected: by cryptographic (blockchain) and energy (Proof-of-Work protocol) security.

The second group of arguments for the thesis that Bitcoin is a hedge against inflation concerns its long-term results as a trading object. There are precise calculations saying that no one who bought BTC at any time and held it for exactly 3 years, 4 months, and 4 days is at loss.

Even a glance at BTC trading history makes it easy to determine that the long-term trend is simply upward. Despite brutal bear markets that brought the price of BTC down 86% in 2014, 84% in 2018, and 75% in 2022, Bitcoin has the nature of a Phoenix reborn from the ashes. Except that it is always reborn stronger, and the level of increases in successive bull markets is best expressed on a logarithmic scale. Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_2

Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_2

BTC weaker than avocado

Despite the above arguments and the well-known history of BTC trading, the inflation hedge hypothesis is again being questioned today. The reason is the brutal bear market that has been going on since the end of 2021 and throughout 2022. It has pushed the BTC price 75% below the all-time high (ATH). Bitcoin has fallen from the 69,000 level reached in November 2021 to the current low of $17,600 in June 2022.

It's hardly surprising, then, that some investors – who bought cryptocurrencies at the high end of last year's bull market – would have happily opted for inflation in their fiat money. This currently stands at 8.2% in the United States and 10.7% in Europe. Even such high numbers are more favorable than a 74% drop: Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_3

Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_3

Some Twitter users poke fun at the inflation hedge narrative by juxtaposing Bitcoin with various assets and commodities. For example, @MacroAIf____ compared BTC to avocados, claiming that "avocados are still a better inflation hedge than Bitcoin." Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_4

Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_4

Correlation with traditional markets

So why – despite all its fundamental and technical advantages – is Bitcoin losing out to avocados over the past several months? One reason is the strong positive correlation of cryptocurrencies with traditional markets, especially technology indexes. Bitcoin supporters are not at all happy about this, as in the past there have been attempts to view BTC as an asset uncorrelated with the SPX or NASDAQ.

However, 2022 has brought quite a few changes. Over the past year, a very strong positive correlation with the bleeding stock market has formed. Such a strong long-term combination of cryptocurrency and traditional stock markets has not been recorded before.

In the chart below, we see the daily correlation coefficient between Bitcoin versus the NASDAQ (blue) and SPX (blue). It has been almost exclusively positive and very high since the beginning of 2022 (yellow area). The correlation with the NASDAQ index of tech companies has remained at 80-90% for most of the year, and with the SPX index at around 70-80%. Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_5

Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_5

Moreover, the correlation with the traditional market is particularly evident during periods of macroeconomic data releases. These include especially new data on the level of inflation, unemployment, or Fed conferences on interest rate hikes.

This was recently pointed out by user @VetleLunde, who tweeted data from October 2022 about Bitcoin's correlation with NASDAQ, SPX, gold, and DXY. Based on them, he concluded that the markets are more correlated during US trading hours and the publication of inflation data (October 13). Thus, we see that U.S. investors are currently looking at Bitcoin more as another risk-on asset than as a hedge against inflation. Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_6

Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_6

Negative correlation with the dollar

A consequence of viewing Bitcoin in a similar manner to tech stocks is the negative correlation with the U.S. dollar index (DXY). Indeed, if one compares the long-term charts of BTC and DXY, the inverse relation is obvious.

All Bitcoin bull markets (green at the top) correlate with declines in the dollar index (red at the bottom). Conversely, BTC bear markets coincide with DXY increases. In addition, the strong inverse relationship is confirmed by the correlation coefficient at the bottom of the chart. During all periods with strong trends, the correlation was almost exclusively negative (gray areas). Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_7

Is Bitcoin Still Hedge Against Inflation? BTC Markets Correlation_7

Conclusion: Inflation is a hedge against BTC

Many on-chain indicators show that the fundamentals of the Bitcoin network are as strong as ever. Moreover, the global adoption of cryptocurrencies is proceeding rapidly, with institutional investors becoming dominant actors, driving the price of BTC.

However, the entry of blockchain technology into the mainstream comes at a price. It is the acceptance that Bitcoin is becoming a part of global finance, and the influencing factors may be different than Satoshi Nakamoto initially envisioned. Therefore, a strong correlation with traditional markets or the perception of BTC as a high-risk asset is not something undesirable.

This is another stage of cryptocurrencies entering maturity. Over time, the level of volatility so characteristic for cryptocurrencies and tempting for traders will weaken. The bottoms won't be so low, and the peaks won't necessarily be reached in the parabolic euphoria of retailers.

Another impressive feature of Bitcoin is its adaptability and ability to fit into different, often mutually exclusive narratives. Bitcoin is not "just" a hedge against inflation, "just" digital gold, or "just" another risk-on asset. Bitcoin has ignited a new, previously unknown class of digital assets, the Cambrian explosion which we are currently experiencing.

The goal of this rapid digital evolution of money is to improve the flawed mechanisms based on fiat currencies' "thin air". And even if it sometimes feels like "inflation is a hedge against Bitcoin," we must not see forest for the trees. And Bitcoin's forest is just now emerging.

Source: beincrypto

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King Ten

Economic

Significant Political Events

The US midterm elections will be held this week, which is an important and critical geopolitical event. Before the midterm elections, the main goal of the Democratic Party was naturally to control inflation, but the results were poor, with the US CPI jumping 6.2% YoY in October, a new high since November 1990. It was a bad message for the Biden administration, and perhaps he acts for himself and suffers the consequences.

However, that could change after the midterm elections. Since the Democratic Party's defeat in the House of Representative, and if the Democrats hold the Senate in the end, the US government face a dilemma, which is the most difficult for the US to implement domestic policies smoothly and coherently.

In the dilemma, it is better to refer to the Obama administration, the US will face a large obstacle to the implementation of the strategy because it is difficult to take more effective measures to stimulate the economy. Consequently, the risk of recession in the US steeply increased. On the other hand, the probability of monetary policy continues to tighten under high inflation will be greatly reduced, which will be the most favorable to global risk assets. However, if the Republican Party controls both houses, the results will be worse for the world.

The Signal of the German Reversal

People may not know the history of German. Based on it provoked the First World War in 1914 and the Second World War in 1933, German's strength is undoubted. Although it was divided after being defeated in 1945, it unified again in 1990 and developed swiftly, growing to be the strongest country in Europe. It is how incredible the resilience of this country, which is in its bones pragmaticism and development. This is the reason why they were able to get up quickly after the falls, as shown in their attitude to admit their mistakes after losing the second world war. In addition, because of the deep reflection and sincere repentance for the war, German was re-admitted by the international community and rapid return to develop the domestic economy, which is called flexibility.

Former German President Merkel visited China 12 times during her term of office, making her the most frequent Western leader to China and making a great contribution to bilateral development, as well as establishing an independent policy towards China from "Value-based Diplomacy" to "Pragmatic Diplomacy". But Scholz's first visit to Japan after coming to power also announced the overthrow of Merkel's China policy, also trying to follow the US "Setting Barriers on Specific Fields" strategy against China for trading. China is not Russia, and decoupling China will be a fatal blow to Germany and even Europe.

As a sudden awakening, German Chancellor Scholz visited China on Friday, and the two sides held a series of trade talks, reaching a series of trade agreements including a $17 billion order from Airbus, domestic approval of the BioNTech vaccine for foreigners in China, and China's acquisition of the German port of Hamburg. Moreover, on the same day, the French foreign minister also said Macron would visit China in the coming weeks or months.

After a long period of Biden's "Setting Barriers on Specific Fields" strategy, Germany tried to unite with the EU to build a "high wall", using technology blockade and industrial chain restructuring, to implement a comprehensive siege, and "de-globalizing" China. In fact, this is also self-protection after the resource-allocating countries are overtaken. Germany and France chose to counter-decoupling and return to Merkel's strategy towards China, China-Europe relations may be improved substantially, which is a better opportunity for China and even Europe, and a good signal for the world. Besides, it is expected that the world will continue the benign development of globalization.

In general, the situation for the Chinese market, the European market, and the global market are all biased to be favorable to risk assets. Nevertheless, the most giant uncertainty remains in the sentiment of the market. If the sentiment can withstand the test this week, risk assets are expected to enter a further ascending path.

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