Before the holiday ended and A shares opened, there was some "not very good" news in the peripheral market.
On Friday, Eastern Time (Friday), the United States encountered "Black Friday" again, staged a "double kill of stocks and bonds". In terms of the stock market, the Dow Jones Industrial Average fell 2.11%, the S&P 500 index fell 2.8%, and the Nasdaq fell 3.8%. The major sectors of the S&P 500 collapsed for the first time that week, with the IT sector falling by more than 4.1%, leading the decline, with major technology stocks such as AMD (AMD.US), Intel (INTC.US), NVDA.US, and TSMC (TSM.US) leading the decline. In terms of the bond market, the yield of 2-year US bond once rose by nearly 9 basis points during the day, and approached its fifteen-year high. The yield on the US 10-year Treasury bond has further risen during the day and has risen for 10 consecutive weeks. is the longest continuous increase record in the past five decades.
And these sudden "abnormal" market reactions stem from the released non-agricultural data report that exceeded expectations, exacerbating the market's expectations for the Federal Reserve's interest rate hike in . How good is
, which exceeds market expectations, non-agricultural data? According to a report by the U.S. Department of Labor, non-farm employment increased by 263,000 jobs in September, and the unemployment rate fell from 3.7% to 3.5% in September, and maintained a low level for nearly half a century. After the September non-agricultural data was released, Nick Timiraos, a famous reporter known as the new "Federal News Agency", quickly posted a message with the title " Fed is on the way to another major rate hike ."
That's the thing. According to theory, a strong employment rate is conducive to economic growth and the macro environment is stable. , but it coincides with the Fed's opening of a interest rate hike cycle. In 2022, the Federal Reserve has raised interest rates five times, with a cumulative interest rate hike of 300 basis points, setting the steepest rate hike since the 1980s.
As the interest rate hike cycle begins, this non-agricultural report that exceeded expectations has made the market interpret it as negative news, because if the Fed continues to raise interest rates, it will theoretically cause negative reactions to the current liquidity and "big bubble" technology stocks and emerging industries. So the market has reflected in advance the negative expectations that the Fed may continue to raise interest rates in November.
CME Fed observation tool shows that the probability of the Federal Reserve hike of interest rates by 50 basis points to the range of 3.50%-3.75% in November is 20.4%, and the probability of raising interest rates by 75 basis points is 79.6%.
In view of the above data, the market has now reached a "basically" consensus: there is a high probability of hikes in November, and it will continue to raise interest rates by 75 basis points.
After the Federal Reserve started the interest rate hike cycle, how did the central banks of various countries do it?
Take the Fed's latest interest rate hike on September 21 as an example. On that day, the Fed announced the third rate hike of 75 basis points this year. On September 22, the Swiss National Bank raised interest rates by 75 basis points beyond expectations, ending the negative interest rate policy that lasted for 8 years. On the same day, the Bank of England and Norwegian Central Bank also announced a 50 basis point rate hike. ECB President Lagarde said on September 26 that the ECB will continue to raise interest rates to cope with the continued rise in inflation levels.
The global "interest rate hike" has begun, why do major central banks choose to "follow" instead of "resist"? Because the global currency is still dominated by the US dollar, according to data released by IMF, World Bank , etc., the US dollar accounts for about 60% of the global foreign exchange reserves. Although the proportion has been on a downward trend in recent years, it is undeniable that the US dollar is still the most important in the global monetary system.
Changes in the economic environment combined with the epidemic in the past two years, countries should not only focus on the domestic situation, but also look at the Fed's "face". In addition to the central bank "flexibly adjusting" currency and exchange rate , there are other means.
says an interesting phenomenon is that global foreign exchange reserves are generally declining. According to statistics, global foreign exchange reserves shrank by about US$1 trillion this year, a decrease of 7.8%, the largest decline since relevant statistics began in 2003.
Take China, Japan and South Korea, which are "closer" to us as an example.
On October 7, the latest foreign exchange reserve scale data was released according to The Administration of Foreign Exchange . As of the end of September 2022, my country's foreign exchange reserves were US$3029 billion, down US$25.9 billion (approximately RMB 184.3 billion), a decrease of 0.85%.
Data released by the Japanese Ministry of Finance on the 7th showed that as of the end of September, Japan's foreign exchange reserves decreased by more than US$54 billion (approximately RMB 380 billion) compared with the previous month, a decline of two consecutive months, setting the largest single-month decrease since a record.
In addition, the latest data from the Bank of Korea shows that South Korea's foreign exchange reserves saw the largest decline in nearly 14 years in September as foreign exchange reserves are used to support the Korean won exchange rate.
Why is foreign exchange reserves declining?
There may be two main reasons for the decline in foreign exchange reserves in various countries: First, as the exchange rate of the US dollar against other major global reserve currencies (such as the euro and the Japanese yen) rises to a 20-year high, the value of these currencies converted into US dollars also declines, so the foreign exchange reserves in various countries shrink accordingly; Second, the decrease in foreign exchange reserves also reflect the pressure on foreign exchange markets in various countries, forcing more and more central actions to use reserve funds to resist the depreciation of local currency , and at the same time prevent international funds from flowing out of their own markets. For example, the Japanese Ministry of Finance explained the reason for the record month-on-month decline in foreign exchange reserves in September, "Foreign exchange intervention is a factor in the decline in foreign exchange reserves."
In other words, it is: 1. The scale of foreign exchange reserves denominated in US dollars in various countries has decreased on the "book" with the exchange rate changes. In the case of the rapid appreciation of the US dollar recently, the "book" reduction in foreign exchange reserves in various countries seems to be very large in a short period of time; 2. Countries actively release foreign exchange reserves, interfere with the return of US dollars, and stabilize the domestic environment.
As the saying goes, "A cannon fires, gold will be ten thousand taels." The same is true in financial markets where gunpowder is invisible. In recent years, as the Federal Reserve announced its withdrawal from QE, it began to reduce the balance sheet and raise interest rates, we have "witnessed history" many times in the stock market and bond markets. And a foreseeable future is that we may continue to "witness history" before the Fed rate hike cycle ends.
However, with Buffett , we don’t seem to lose a lot of money with us.
Author: Xu Tengyao
