On Friday (September 30), the dollar index surged and fell back, but its overall trend was still strong. The behavior of central banks in various countries' market intervention has temporarily alleviated concerns about a sharp strengthening of the US dollar, while the market continues to digest the prospects of the Federal Reserve's future interest rate hike. Other non-US aspects, the ECB hawkish tone limits the downward trend of the euro, and the Bank of England interferes in the market to support the pound.
The Chinese market will be closed next week on the National Day holiday, and the European and American markets will be operating as usual. Among them, the non-farm employment report in the United States will become the focus of market attention. At the same time, investors should also pay attention to the possible impact of uncertain factors such as central bank accidental intervention, geopolitical situation, and global epidemic on the market.
USD index surged and fell. The Bank of England's rescue behavior eased market pressure. At the same time, the market continued to digest the prospect of the Federal Reserve's interest rate hike. Concerns about the global economic slowdown continued to support safe-haven USD
chart: US index trend
The Bank of England's rescue behavior eased market pressure. The US dollar temporarily adjusted
0 Bank of England's rescue behavior may temporarily ease the upward pressure and sentiment of the UK, the United States and other global treasury yields. From the future, the way central banks in major developed economies raise interest rates will still bring pressure on the bond market and foreign exchange market. If the UK and the ECB also actively tighten in the fourth quarter of this year, weakening of short-term arbitrage factors can alleviate the pressure on global financial markets by the rise in the US dollar index, but at the same time, the rise in interest rates in these economies will also bring the risk of cross-border capital flows.
The Bank of England issued a statement on the 28th saying that it will temporarily purchase British long-term Treasury bonds "at any necessary scale" to restore market order, and British Treasury bonds will rise across the board. The Bank of England will purchase British Treasury bonds with a remaining term of more than 20 years in the secondary market. The term of purchase of bonds will last from September 28 to October 14. Once the risk of market operation is judged to have subsided, the Bank of England will withdraw from bond purchases smoothly and orderly. The Bank of England also stressed that the quantitative tightening plan for reducing its holdings of 80 billion pounds of British Treasury bonds will remain unchanged, but the UK Treasury bond sale plan, which was originally scheduled to start next week, will be postponed until October 31.
Kyodo News reported on September 26 that the scale of intervention of the Japanese government in the foreign exchange market on the 22nd may reach 3 trillion yen (about 147.8 billion yuan), a record high. The Bank of Japan Governor said at a press conference held in Osaka on the 26th that this foreign exchange intervention is a necessary measure to implement excessive fluctuations in the yen exchange rate. The Japanese government is seriously concerned about the rapid unilateral decline of the yen exchange rate and will take further actions if necessary. Once the yen experiences "excessive flow" due to speculative activities, the government will intervene again if necessary.
market continues to digest Federal interest rate hike prospects, the US dollar fell in the short term and adjusted
Currently, the Federal Reserve raised interest rates by another 75 basis points on November 2, has almost been completely digested by the market, and another 50 basis points on December 14. There are some adjustments to the US dollar in the short term.
This Thursday, Fed officials reiterated that they will continue to raise interest rates to curb unacceptable high inflation, and that the market has now understood the information. Cleveland Fed Chairman Mester said she believes the U.S. financial markets are not in trouble and the Fed will not change its current austerity policy for the time being.
Mester said that although no one knows exactly whether there is a big problem lurking in the financial field at present, so far, we have not seen any functional disorder in the market. Even though this is happening in the global market right now, we have not seen this in the US market. Mester also talked about the global turbulent market conditions. The day before, in order to stabilize the continued decline in the UK Treasury bond market, the Bank of England announced plans to purchase Treasury bonds, which put greater pressure on the government led by new Prime Minister Trass. Mester insisted that she doesn't think there is any reason to slow down the pace of rate hikes now. She noted that at last week's policy meeting, officials set a higher path for federal funds target interest rates to get it to 4.6% next year. Mester expects the Fed may need further rate hikes.
Previously, Fed Evans said that the Fed's policy interest rate has begun to enter a restrictive range, but it is still far from being restrictive at present; at the end of this year or March next year, the Fed's policy interest rate is between 4.5% and 4.75% is a good goal; there is currently a consensus on the issue that policy interest rates should continue to rise, and it is expected that at some point the Fed will have to slow down the rate hike slightly.
Fed Bostic said that inflation is too high and the decline is not fast enough, and the Fed's policy stance must remain moderately restrictive. The current baseline is the 75 basis points rate hike in November and 50 basis points rate hike in December, which tends to reach the range of 4.25%-4.5% by the end of the year. Fed Daly said in a speech that the delicate balance between the Fed's suppression of demand to slow inflation without triggering a recession will be a "struggle". She hopes the Fed's actions to curb demand can meet the supply chain's recovery "midway through", but this may not be possible.
The Fed previously raised interest rates by 75 basis points as scheduled to 3.00-3.25%. Economic expectations show that interest rate hikes may further accelerate in the future. The Fed's FOMC9 dot chart shows that the Fed expects to raise interest rates by at least 75 basis points in 2022 and will not cut interest rates until 2024. Federal Reserve Chairman Powell said at a press conference after the interest rate meeting that he firmly committed to reducing inflation and promised to lower inflation to 2%. At the same time, Powell quoted the FOMC interest rate dot chart differentiation, saying that the Federal Reserve will raise interest rates by 100-125 basis points in 2022. In addition, European Central Bank Vice Governor Jindos said that recent data shows that the economy has slowed down sharply and may stagnate around the end of the year; inflation risks are on an upward trend, and interest rate hikes will continue, and the data will determine the scale of interest rate hikes. The Federal Reserve's resolution stated that it was hawkish and Fed officials continued to make hawkish remarks, especially Powell said that the Federal Reserve will raise interest rates by 100-125 basis points in 2022, and there are two interest rate meetings left this year. Therefore, the pace of subsequent large interest rate hikes in the Federal Reserve may continue, and the yield and US dollar index may still operate at a high level.
Concerns about a global economic slowdown remain, and demand for safe-haven dollar remains strong
As major central banks continue to raise interest rates sharply, market concerns about a global economic slowdown are intensifying. Last week, the Federal Reserve raised interest rates by 75 basis points, while other major global central banks accumulated interest rates by 425 basis points, aggravated market concerns about the prospects of the recession and clouded the outlook for crude oil demand. Therefore, international oil prices are still on the defensive, as a decline in demand means prices fall. Sources say that no matter how much the cost to economic growth, more central banks are forced to take unconventional measures and economic demand will be hit, which may help rebalance the crude oil market.
U.S. home building permits dropped 10.0% in August, the lowest level since June 2020. This is one of the more forward-looking real estate market indicators, indicating that the industry will have huge risks in the future. The yield on the 10-year U.S. Treasury bond hit its highest since April 2011, with the closely watched 2-year/10-year Treasury bond yield spread further inverting, a leading indicator of the recession. According to the Atlanta Federal Reserve's GDPNow forecast, the U.S. economy is expected to grow annually in the third quarter at 0.3%, down from 0.5% previously forecast. The Atlanta Fed explained in the report that the third-quarter residential investment growth forecast in Nowcast fell from -20.8% to -24.5% after the U.S. Census Bureau's new home start report was released this morning.
The leading investment research firm in the United States, NDR, currently believes that the probability of a global recession is 98%, triggering a "severe" recession signal. The only other data on this model that is so high is that during the previous severe recession, such as 2020 and 2008-2009, the selling pressure on global stock markets is still increasing. U.S. stocks fell deeper in a bear market on Monday, with the S&P 500 index and the Dow closed lower on fears that the Fed's aggressive anti-inflation action could put the U.S. economy in a deep recession.
Brown Brothers Harriman economists are optimistic about the dollar against the backdrop of a general safe-haven environment and last week's hawkish decision by the Federal Open Market Committee (FOMC).The market was already nervous last week as major central banks tightened monetary policy, but the huge mistakes in the UK's fiscal policy further added fuel to the fire.
The bank's economist, while global economic growth has also slowed down significantly, the overall environment for risky assets is still full of challenges. The bank expects the dollar to continue to strengthen in this environment, although expectations of a tightening of the Federal Reserve remain high.
Euro against the US dollar this week bottomed out and rebounded, supported by the decline of the US dollar. The ECB's hawkish tone supports the euro, but the political situation in Europe is unstable and concerns about the economic recession have always put downward pressure on the euro overall
chart: The daily trend of the euro against the US dollar
The ECB's hawkish tone limits the downward trend of the euro.
ECB policymakers said on Wednesday that another 75 basis points may be needed at the October meeting and again in December to levels that no longer stimulate the economy. The ECB raised a total of 125 basis points in its last two meetings, the fastest tightening of policy on record, but inflation may still take months to peak, suggesting that the ECB will tighten monetary policy further. The ECB began hikes much later than most peers.
Slovak Central Bank Governor Peter Kazimir said at a press conference: I have to say that 75 basis points is a good choice for maintaining the pace of tightening (our next step), but it is also necessary to wait for new data to come out. We must remain radical, even ruthless, regardless of the upcoming recession.
Finnish Central Bank Governor Olli Rehn also said that 75 basis points may be one of the options. Rehn said: There is reason to make another big decision to raise interest rates, which could be 75 or 50 basis points, or other moves. There is more reason to take positive action and firm action. "But he did not elaborate on what other moves might mean.
markets expect the ECB deposit rate to rise to 2% by the end of this year and to around 3% next spring. Inflation is expected to remain above the ECB's 2% target by 2024, and even longer-term expectations will be higher than the target.
ECB president Lagarde said the "first goal" of the interest rate hike cycle will be "neutral" interest rates, i.e. neither stimulating nor slowing economic growth. Going back to 2%, we will take the steps that must be taken, namely, continue to raise rates in the next few meetings.
While neutral is a loosely defined concept, economists think it is in the range of 1.5% to 2%, which is what Rehn thinks should be reached this year. Rehn said: “In my opinion, we will move towards the neutral rate range before Christmas. Once we get there, we will see if there is a need to enter the restrictive territory.
Kazimir added that the 25-member management committee agreed that it must touch the "neutral" level, but for There is no consensus on what level this means. As part of the normalization of monetary policy, the European Central Bank may also discuss the reduction of its balance sheet this year, but the discussion does not automatically mean that such actions will be taken immediately.
European political instability puts pressure on the euro. On September 26, local time, Italian right-wing alliance leader Meloni announced his victory in parliamentary elections. At the same time, its main competitor, the Democratic Party, announced his defeat. Many European media believe that Italy will have the most right-wing government since the end of World War II .
Previously, Meloni's anti- EU " and "anti-immigration" stances such as Meloni held were relatively extreme. His split political identity tags will not only cause Italy to fall into a fierce debate, but may also send a destructive voice to the EU decision-making level.
The conflict between Russia and Ukraine is still continuing, and many European countries are trapped in the energy crisis and inflation problems are getting worse. European countries will face tremendous pressure if they continue to fight against Russia. If Italy becomes another Hungarian at a critical moment, it will run against the EU, which is undoubtedly a major blow to European solidarity.The victory of the Italian center-right party in the election will shock the EU as much as Brexit , and will even accelerate the EU's division. Once more right-wing forces from European countries come to power, the risk of EU dissolution will continue to escalate.
European Commission President von der Leyen had issued a warning to Italy a few days ago, suggesting that if Meloni and his brotherly party win the election, the EU will use punishment measures like those against Polish and Hungary.
concerns about the economic situation in Europe are also putting pressure on the euro. data on September 23 showed that the overall performance of the initial PMI in September was poor, which once again caused the market's concerns about the economic outlook of the eurozone. What's even worse is that the darkest moment of the European energy crisis may not have arrived yet, and the prospects are expected to decline, and it may be far away from the bottom.
The high inflation economy slowed down sharply or even shrank, and the eurozone may have entered a stagflation cycle. Then, the effect of the ECB continuing to raise interest rates to curb inflation will not only greatly reduce, but will also further deteriorate the economic situation.
In the dilemma of the euro zone economy being continuously bleeding and the EU facing the risk of being torn apart, the fate of the euro being continued to be sold off by the market may be inevitable. The prospects of the euro-dollar dollar will become increasingly sluggish due to the increasingly severe political and economic situation at home and the pressure of the strong dollar is suppressed on the outside. The possibility of falling to the low point after the establishment of the euro cannot be ruled out.
Morgan Stanley released a report saying it maintained bearish expectations for the euro against the dollar, with a target level of 0.9300. The bank stressed that economic stagflation and geopolitical concerns were key catalysts supporting it to maintain this view.
market suggests that the ECB terminal interest rate could rise by 3%, and the market previously believed that a reasonable increase in terminal interest rates was expected to be 2%. Morgan Stanley believes that the upcoming inflation data in the euro zone this Friday will be an extremely important reference because investors need to use it to measure the inflation outlook of the euro zone.
pound volatility and rising against the US dollar this week. Supported by the US dollar's decline, the Bank of England's intervention in the market also supported the pound pound
chart: pound pound versus the US dollar daily chart trend
Bank of England's rescue behavior temporarily alleviated the upward pressure and sentiment of the UK, the United States and other global Treasury yields, and can also become a means to temporarily prevent the rise of the US dollar index.
The Bank of England's temporary purchase of "at any necessary scale" for a long time is to support the UK Treasury market and to endorse the UK's fiscal credit. The new British government announced large-scale fiscal stimulus measures on September 22. The UK Debt Authority calculated that net financing demand in the 2022-23 fiscal year will increase by £72.4 billion to £234.1 billion. The funds with a sharp increase in the scale of government borrowing will be raised mainly through the issuance of government bonds by . The financial market has temporarily affirmed the Bank of England's heavy blow. The UK's 30-year Treasury yield hit a record-breaking largest decline after the Bank of England announced its bond purchase plan. In addition to the rise in short-term bond yields, bond yields for one year and more have all declined to varying degrees, with long-term bond yields falling by more than 10%. The market's selling of pound assets has been temporarily alleviated.
On the other hand, the UK's tax cut policy has caused market fluctuations and doubts. British Chancellor Kwasi Kwoten announced the country's largest tax cuts in 50 years on September 23 to boost the economy. On the 25th, Kwoten said that the government has planned to lower the personal income tax rate and will introduce more related measures in the future. This statement aggravated the market panic.
International Monetary Fund (IMF) publicly criticized the UK's tax cut policy on the 27th, saying that the relevant policies may "intensify injustice" and increase pressure on price increases. A spokesman for the organization said in a statement that given the rising inflationary pressures in many countries, including the UK, it is not recommended to implement large-scale and targeted fiscal plans at this node, and fiscal policies cannot be contrary to monetary policy purposes.
Victoria Sholer, head of investment at UK Interactive Investment Corporation, said the government's tax cuts were designed to support economic growth, but because the plan relies on large amounts of government debt and the current sharp rise in borrowing costs, investors are worried that the government is not considering fiscally prudent and prudent monetary policy.In addition, the policy does not take into account the negative impact of the current high inflation level in the UK.
In response to external doubts, British Prime Minister Elizabeth Tras publicly responded for the first time on the 29th that the near-term fiscal plan is the right choice, and the British government must take decisive action to promote economic development and curb inflation. Tras said budget plans are often accompanied by controversy, but the government needs to act quickly to avoid the expected recession, is using various means to promote economic growth, and is working closely with the Bank of England on fiscal plans. But Sullen Tilru, economic director of the Association of Chartered Accountants in England and Wales, believes that this round of tax cuts is unlikely to achieve the significant economic growth expected by the government, and may instead fuel inflation and push up interest rates. The sharp drop in the pound 1 exchange rate and the surge in government borrowing costs highlight the importance of reliable fiscal plans, which are the keys to supporting the UK's economic outlook.
From April to July this year, the UK's inflation rate set a record high in 40 years. In August, the UK Consumer Price Index rose 9.9% year-on-year, still at a 40-year high. In order to curb high inflation, the Bank of England announced on September 22 that it would raise the benchmark interest rate from 1.75% to 2.25%, the seventh time the Bank of England raised interest rates since December last year.
This article is from Huitong.com
