U.S. stocks recovered slightly on Friday but ended up down for the week as anxiety over the G20 summit and the Federal Reserve turning more hawkish impacted investor sentiment. A lot is riding on the G20 summit this week, especially with notable absences that include China’s Xi Jinping and Russia’s Vladimir Putin. President Biden will have an opportunity to make fresh inroads with many countries in the group (that account for more than 80% of global GDP) and reestablish the U.S. as the undisputed leader of the international system. Biden’s biggest objective at the G20 will be to boost the funding and reach of the World Bank and other development banks as a counterweight to emerging economies that have sought lending from Beijing. The bigger fear for the U.S. is should China be successful in creating a separate economic and financial system, the effects of sanctions will wane with the dollar no longer controlling the majority of transactions in international trade.
How successful will China and Russia be in their quest to change world order is one that Wall Street will be watching very closely.
Future Wealth’s View
Earlier this week, China announced that it is looking to expand a ban on the use of iPhones in sensitive departments, government backed agencies and state companies. In addition, Beijing intends to extend that restriction far more broadly to state owned enterprises and other government controlled organizations. If Beijing goes ahead, the unprecedented blockade will be the culmination of a yearslong effort to root out foreign technology use in sensitive environments. But, it is a gamble that China is taking that will likely come to bite them in the not so distant future.
Attempting to transform world order may be construed as being noble by Russia and North Korea but the rest of the world looks to the USA to establish and maintain global order. The primary reason for China’s retaliation is not that it can pull off a coup and displace the US dollar but to instead test how much resilience does the US system have to fend off China while fighting off anarchy from a former president – Donald Trump. While few in the America pay any attention to Donald Trump’s lies and garbage in his attempt to subvert the system – China, Russia and North Korea are developing strategies every day to capitalize on his stupidity and nonsense.
For a sustained rally on Wall Street, everything has to be in place and not everything has lined up correctly yet. But, near term, all eyes are now going to be on next Wednesday’s consumer price index (CPI) report for further clarity on the Fed’s future monetary policy actions and the likely direction of the economy.