Author: Luo Weihan (Senior Macro Researcher of Yinke Financial Research Institute)
Zheng Meimei (Vice President of Research at Yinke Financial Research Institute)
Overseas
Overseas macro
Overseas macro
Crisis is everywhere, Mingzhe Baoshen
in August both the US CPI and Michigan inflation expectations index fell, among which the year-on-year growth rate of CPI fell slightly to 8.3%, and still rose by 0.1% month-on-month. Energy prices fell, but the food sub-item rose. The upward trend in food prices is related to the production cuts of agricultural and sideline products due to high temperatures this summer. Overall, inflation is declining, but the downward speed is lower than expected. In September, the Federal Reserve raised interest rates by 575 basis points. It is expected that the Federal Reserve will continue to maintain its tight monetary policy in the second half of the year, but its strength may slow down. Among other data, PMI remained the same as last month and recorded 52.8, with the unemployment rate slightly rising to 3.7%.
html In September, global emergencies still did not have a eased momentum, the conflict between Russia and Ukraine continued, and European electricity prices continued to hit new highs. Recently, the Nordic pipeline has been damaged and exploded, and the supply of natural gas to Europe has been restricted again. How to survive the upcoming cold winter in an orderly and stable manner has become the biggest challenge for European countries.Recently, bulk prices have continued to fall. As of the end of September, copper, aluminum, zinc, lead, and rebar have all fallen year-on-year. The main commodity prices fell back to the level before the Russian-Ukrainian conflict. The downward trend in bulk prices shows that demand is recession due to the impact of interest rate hikes from central banks in various countries. Combined with the decline of COMEX gold and silver this year, the world is entering a recession.
Inflation falls often slow down
The market is too optimistic about the downward trend of inflation. The break-even inflation rate for the 1-year, 2-year and 5-year period has fallen sharply, and the 1-year period has even fallen to a low level of 2.25%. Historically, however, inflation has often taken a long time to fall. Since 1914, U.S. inflation has exceeded 5% for the past few times and then fell back to the level of 2% (below 2.5%), which takes an average of 46 months. When inflation highs reach more than 10%, the average time it takes for inflation to fall is as high as 81 months.
Source: Bloomberg, Yinke Financial Research Institute
Source: Bloomberg, Yinke Financial Research Institute
We tend to think that there is a high probability that the trend of inflation decline in the fourth quarter will be without suspense (unless an unexpected event of the level of conflict between Russia and Ukraine will occur again), but the process of inflation decline may be slow. The non-agricultural employment data in August slightly exceeded expectations, more workers returned to the employment market, and the labor participation rate rose slightly, which also led to the rise in the current unemployment rate. Rising unemployment rates will help alleviate wage inflation pressures, which is in line with the Federal Reserve's intention to cool the job market, but it is far from the point where it can change the path to rate hikes.
Source: Bloomberg, Yinke Financial Research Institute
The depreciation of global capital will pay for US inflation
Since this year, except for the high fever of US inflation, the euro zone's reconciliation CPI rose by 9.1% year-on-year in August, setting the largest increase on record. On September 21, the Federal Reserve announced a 75 basis point rate hike, raising the target range of the federal funds rate to between 3.00% and 3.25%. This is not only the fifth rate hike this year, but also the first time since 2008 that it has exceeded 3%. After the Fed raised interest rates by , central banks around the world have simultaneously set off a wave of interest rate hikes. The next day, the Bank of England, Swiss National Bank, Norway, South Africa, the Bank of the Philippines, the Bank of Vietnam, the Bank of Indonesia, and the Bank of Qatar announced interest rate hikes. Among them, the Swiss National Bank, the Bank of South Africa and the Bank of Qatar raised interest rates by 75BP, maintaining the Fed's level; the Bank of England, the Bank of Norway, the Bank of Philippines and the Bank of Indonesia chose to raise interest rates by 50 basis points; the Bank of Vietnam raised the refinancing rate and deposit interest rates by 100 basis points respectively. Global central banks have two purposes to follow the Fed's interest rate hike. First, they are to suppress inflation levels in the economy; second, they are to confront the US dollar to reduce currency fluctuations caused by the Fed's recovery of liquidity.
Like other central banks around the world, the Federal Reserve's monetary policy target is also currency stability and employment. Since the beginning of this year, US economic inflation has continued to fluctuate at high levels, posing huge hidden dangers to subsequent economic recovery.To this end, the Federal Reserve began to rely on interest rate hikes to recover the previously over-issued USD to recover liquidity. However, due to the special status of the US dollar in international transactions, although the Federal Reserve manipulates its own monetary policy, it will also affect the flow of international capital. Ultimately, the depreciation of global capital will pay for US inflation, so central banks in various countries can only fight against the Fed's interest rate hike by simultaneous interest rate hikes or advanced interest rate hikes.
Amid the global interest rate hike, assets in various countries have depreciated one after another. Overall, the exchange rate declined. Since the beginning of this year, among the major currencies in the world, except for the US dollar and rubles , there have been a sharp decline. The sharp rise in the ruble is mainly due to global energy demand and has nothing to do with monetary policy.
Source: Bloomberg, Yinke Financial Research Institute
Against the background of the sharp depreciation of currencies in major economies in the world, the rise in unemployment rate, continued high inflation and a significant decline in demand, the possibility of a recession in the global economy has increased rapidly. At present, central banks' respective interest rate hike strategies will exacerbate global inequality. In order to achieve a soft landing in the global economy, leaders of major economies should also work together to assist the economy in returning to normal as soon as possible and maintain currency stability, employment and regional situation stability.
Overseas capital market
Entering a high volatility month, there may be the last drop in the fourth quarter
U.S. 10-year Treasury bond yield rose rapidly from 2.6% at the end of July to 3.7%, and even exceeded 4% at one point. The main reason is the upward revision of the end point of interest rate hikes. Since 1980, the yield on the 10-year U.S. Treasury bonds has often peaked before the end of the interest rate hike cycle, leading policy interest rates peaked for about one quarter and close to the highs of policy interest rates.
Source: Bloomberg, Yinke Financial Research Institute
Source: Bloomberg, Yinke Financial Research Institute
US bond yield may have a "last push", but even if it breaks through 4%, it will be short-term and difficult to maintain unless the Federal Reserve further raises the end point of interest rate hikes. Considering the constraints, there is a close recession risk, and more importantly, the increase in US debt pressure, and the long-term US Treasury yield is likely to be difficult to sustain.
interest rate hike will not inevitably lead to a decline in the stock market. It should be noted that the market's expectations for profits of US stocks are still at a high level, and the decline in corporate profits accompanied by the interest rate hike cycle almost every time appears at the end of the interest rate hike cycle, and it is even after the end of the interest rate hike cycle, rather than the first half of the interest rate hike.
Source: Bloomberg, Yinke Financial Research Institute
Since September, the market volatility has increased. According to statistics, October will usher in the month with the largest volatility of US stocks this year, and there are similar phenomena in Hong Kong stock .
Source: Bloomberg, Yinke Financial Research Institute
Considering the approaching US midterm elections, we may have to face a more volatile market in the fourth quarter, and the probability of the US and global economy recession next year is also increasing.
Even so, the bottom of the market does not have to wait until the worst situation occurs. US stocks with price-to-earnings ratios below 15 times and US bonds with yields above 3.5% are all assets with long-term allocation cost-effectiveness.
The author of this article does not hold the relevant stocks mentioned in this article.
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