China's paint industry has been hit hard by the Federal Reserve's interest rate hike.

At 3 a.m. Beijing time on December 15, the Federal Reserve's annual interest rate hike finally opened. The Fed announced a 25 basis point rate hike and hinted that it would raise rates sooner next year. After the interest rate decision was announced, the dollar index reversed its decline and rose, while non-US currencies and spot gold retreated. Most frighteningly, Fed officials expect to raise interest rates three times next year. The dollar strengthened rapidly after the Fed's decision to raise interest rates. At one point, the index rose 128 points, or about 1.2 percent, to a high of 102.35 since January 2003. At one point, the offshore yuan hit 6.8950 against the dollar, falling to an in-day low of 6.93 yuan in the end of New York, its highest level since January 2003.
Capital Outflows Foreign Exchange Reserves Fall Sharply Domestic Economy Adds To the Worse
Fed Rate Hike Has Little Impact on China's
Paint
Industry on the Face of It, but Beware of Capital Outflows from China as a Result of The Federal Reserve's Rate Hike. In June 2014, China's foreign exchange reserves amounted to $399.3213 billion, down nearly $500 billion in 2015 and declining in 2016. By November, it was close to $3 trillion.
's foreign exchange reserves have fallen more than expected because of the dollar demand problems caused by the Fed's interest rate hike in 2015, the need to stabilize the yuan, the need for people to invest abroad have also consumed foreign exchange reserves, and because of falling U.S. debt prices, there will be a pullback in size, other holdings such as the euro, yen and other exchange rate decline against the U.S. dollar, will also have a shrinking effect on the central bank's foreign exchange reserves. A Fed rate hike would be good for the dollar, and further appreciation of the dollar would lead to higher borrowing costs in emerging economies and increase volatility in global credit markets. The outflow of capital has undoubtedly added to the downs of China's economy. The devaluation of the renminbi will have a significant impact on China's imports and exports, especially those that rely on imported goods.$
entered the path of interest rate hikes, causing the dollar to appreciate and commodities to continue to rise
the logic is usually that the Fed's rate hike is good for the dollar and commodity prices should be under pressure to slide, but historical data suggest that this is not so simple from the last three Fed rate hike cycles. Once in the interest rate hike cycle, commodity prices tend not to fall back up. What will happen to global capital market prices as the US enters a new cycle of interest rate hikes? By looking back at history, we may be able to find out exactly.
In the past three decades, the Fed has experienced five rounds of rate hikes:
the first round of May 1983-August 1984 (four rate hikes)
the benchmark interest rate rose from 8.5 per cent to 11.75 per cent, the US dollar index rose 15 per cent, the Standard and Poor's 500 rose 3.5 per cent gold fell 20 per cent and crude oil fell 3 per cent;
Second round March 1988-February 1989 (12 rate hikes)
benchmark interest rate rose from 6.5 per cent to 9.75 per cent, the DOLLAR index rose 6.5 per cent, the S.P. 500 rose 10.4 per cent Gold fell 14.6 per cent crude oil rose 6.4 per cent;
Third round February 1994-February 1995 (7 rate hikes)
Benchmark interest rate rose from 3.25 per cent to 6 per cent, while the dollar index fell 9.3 per cent, while the S.P. 500 was flat gold fell 2.7 per cent and crude oil rose 18.5 per cent
The fourth round June 1999-May 2000 (six rate hikes)
the benchmark interest rate rose from 4.75 per cent to 6.5 per cent, the DOLLAR index rose 8.2 per cent, the S.P. 500 rose 6.8 per cent Gold rose 5 per cent crude oil rose 54.1 per cent;
the fifth round june 2004-June 2006 (17 rate hikes)
benchmark interest rate rose from 1% to 5.25%, the dollar index fell 3.3% S.P. 500 rose 11.6% Gold rose 52% crude oil rose 98.4%;
only one of the five previous rate hikes in the U.S. dollar has fallen. Recently, at a meeting of OPEC and non-OPEC countries in Austria, the participation of many countries in crude oil production restrictions is bound to cause the scarcity of goods, which in turn makes the interest rate hike to promote crude oil prices become almost no suspense. If crude oil rises sharply again, it will further push up commodity prices, such as paint raw materials, which are closely related to it, which will make life more difficult for
paint companies
days.
The Federal Reserve raised interest rates Domestic stock market, property market fell, corporate financing difficult
China's housing bubble is severe, and a Federal Reserve rate hike could affect expectations of China's economy, accelerating the adjustment of urban housing prices.
the second half of 2017, if expectations of a U.S. interest rate hike heat up again, pressure on the yuan to depreciate may re-start. And the exchange rate is ultimately determined by economic fundamentals, although the short-term stability of the domestic economy, but the down pressure remains, asset prices are still high, so the future depreciation pressure will continue to plague. The devaluation of the renminbi and the massive outflow of Chinese capital will make it more difficult for companies to raise capital, especially in cash-strapped domestic paint companies.
2016, paint companies are struggling due to rising raw material prices, weak downstream demand, increasingly serious environmental protection issues and supply-side reforms. The continued depreciation of the renminbi will lead to an increase in exports and higher import costs. Increased export volume, will cause the shortage of raw materials in the domestic market, which in turn will promote the sharp rise in prices, coupled with the rising cost of imported raw materials, will eventually be superimposed on paint enterprises, multi-party resonance, it is expected that in 2017 domestic paint enterprises will continue to stage the "failure" of the play code.