🌏 Chinese Woes = International Consequences

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👋 Friends, Rallie here. The newsletter delivering the latest in crypto, finance, and tech, even on the hottest of days.

On the menu:

• 🌏 Chinese Woes = International Consequences

• 🗞️ Headlines That Hit

• 📈 Refresh: Hawk

• ✌️ Trivia Tuesday

• 💯 Top Tweets

The Rallie Recap

🇨🇳 China, the world’s second largest economy is struggling with its economic volatility. How are international markets impacted?

• 🚧 As constant socioeconomic and political challenges arise, the need for China to solve the domestic and international crisis of confidence is critical.❗

• What’s happening? 🤔 Firstly, due to years of overbuilding and excessive borrowing, China is going through a real estate crisis.

• The China Evergrande Group, the go-to developer at the core of this issue has lost 95% of its market cap from its peak. 🏠

• It is especially concerning because property weakness is cited as one of the biggest obstacles for economic recovery and overall stability. 😳

• 🏘️ How important is real estate? It accounts for ~25% of the Chinese economy, which is still suffering from homebuyers threatening to stop repaying mortgages because developers could not build pre-sold housing projects (due to restricted liquidity and COVID restrictions last year). 😡

• Meanwhile, 😵‍💫 Chinese local governments, financial affiliates and real estate developers owe trillions of dollars with its youth reaching record levels of unemployment.

• Many are losing trust in China’s economy: over $10B USD has been pulled out of China’s stock market, with falling exports and weak consumer spending. 📉

• 🏛️ To encourage economic recovery, China has cut its key interest rates with cuts to its one-year, short and medium-term rates for loans. However, it is far from enough, the country has slumped into deflation for the first time in more than two years. 🤧

• 🏥 Additionally, they are cracking down on corruption in its health industry to ease some of public frustration, find extra funds and address affordability issues on essential services.

• But the international community and their reliance on China is critical to economic recovery. 🌐

• Because of China’s large economic reach, their economy was meant to drive a third of global economic growth this year. 🏁

• Although the slowdown means a decrease in prices of globally shipped goods and opportunities for emerging markets, 🚩 the diminished value of imported commodities has negatively impacted international shipments and metal-exposed currencies. 💸

• Between China and the U.S., over $700B USD of trade is shared 🤝, so how the two solve commercial and investment problems is also crucial to world trade. 🛳️

• U.S. commerce secretary, Gina Raimondo, says “A growing Chinese economy that plays by the rules is in both of our interests,” but how will negotiations turn out with ongoing disputes? 💥

• 🇺🇸 However, some argue that the implications of China’s struggles are probably minor for the U.S., with “China’s limited role as a customer for American goods and the minor connections between the countries’ financial systems.”

• Will China recover from its crises, and how is the world adapting?

Headlines That Hit

• 🤖 AI personalization. OpenAI launches ChatGPT Enterprise, the chatbot’s business tier, equipped with the ability to input clients’ company data for training and program customization.

• 🩸 More blood needed! Canadians are being asked to fill the gap in blood donations, as ~10K in appointments need to be filled across the nation between now and Labour Day.

• ₿ HODL! Bitcoin investors are preparing to buckle down as experts hypothesize that the asset may drop from $26K to $22K in September.

• 🇨🇦 Canada’s cybersecurity. Organized cybercrime is expected to pose a significant threat to Canada’s national and economic security over the next two years.

Rallie Refresh: Hawk

It’s a bird, it’s a plane, it’s inflation! Today, we break down what the term ‘hawk’ means when it comes to the economy.

🪶 What is a hawk?

• ☝️ Also known as an inflation hawk, it’s a policymaker or advisor who uses interest rates to control inflation. 

• These individuals are generally focused on maintaining price stability and controlling inflation, often favoring tighter monetary policies to achieve this goal.

• When someone is described as hawkish, it means that they agree with the increase of interest rates to combat inflation. 🤼

• ⚖️ However, a hawkish approach can come with a cost, such as decreased economic growth, consumer spending, and employment.

• The opposite of a hawk is a dove, where individuals favour interest rate policies that stimulate consumer spending in an economy instead of hindering it. 🕊

• Let us know if you want to learn about the specific types of hawks…

💭 The logic behind it:

• Because inflation can occur when economic growth “overheats,” hawks want to control that rise through higher interest rates.💰

• 🏦 The higher rates make it more likely that people will save money instead of borrow, and banks can start lending money more freely because high rates lessen risk. 💸

But, this method can backfire…

• Because of the sacrifices that comes with higher interest rates (e.g. increases in unemployment), 🙃 a hawkish approach can cause deflation (a decline in prices for goods and services which can cause investors and debtors to pay more than what they bargained for).

• 🚢 This approach can also make domestic producers and trade suffer because of notably more expensive domestic exports and relatively cheaper imported foreign goods.

• Finally, companies are less likely to borrow, invest and hire in a more costly environment. 😬

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✌️Trivia Tuesday✌️

🤨 The answer for Thursday’s newsletter (Is Ether a cryptocurrency or crypto token?) is cryptocurrency! Find out today’s answer on next time!

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DISCLAIMER: This is not financial or legal advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions.