overnight US stock plunged due to higher than expected inflation data opening , and once fell close to 3%. However, in the end, the three major stock indexes rebounded more than 2%, which shocked many senior traders. The volatility range of S&P 500 index on that day was as high as 5.03%, which was the largest single-day volatility since March 18, 2020, at that time, at 7.22%, and the U.S. stock market triggered a circuit breaker due to the outbreak of the epidemic.
, driven by a big rebound in US stocks, the Asia-Pacific market rose on Friday. The Hang Seng Index in Hong Kong closed up 1.16%, the Nikkei 225 index also rose 3.25%, the Shanghai Composite Index in rose 1.84%, and the northbound funds were inflowed by nearly 7.4 billion yuan. Why did the sharp reversal of overseas markets occur and can it continue? Where will the Asia-Pacific market go in the future?
US stocks reversed
On the evening of October 13, Beijing time, US stocks plunged in opening, and the trigger was inflation data.
US inflation rose 8.2% year-on-year in September (8.1% exceeded expectations, 8.3% in the previous value); CPI rose 0.4% month-on-month in September (0.2% exceeded expectations, 0.1% in the previous value); core inflation rose 6.6% (40-year high). Several key indicators were higher than expected.
"Suggests that inflation may be more tricky than previously thought. Looking deeper, the main factor that led to higher data than expected was housing inflation, up 6.6% year-on-year, the highest level on record; similarly, rent inflation was 7.2%, a record high." Matt Weller, head of global research at Jiasheng Group, told reporters.
According to CME’s FedWatch tool, federal funds futures traders now expect the probability of Fed hike rate 75BP again in three weeks is more than 90%. As the Federal Reserve increases its efforts to fight inflation, by the end of this year, at least a total of 150BP will be raised.
After months of tricky inflation and soaring interest rates, nervous traders are desperate to sell risky assets first. The yield of the 2-year bond , which is more sensitive to monetary policy, soared by nearly 20BP at one point, testing the 4.50% highest point in 15 years; the major U.S. stock index fell nearly 3% before the market after the release of CPI data; the dollar index once approached a 20-year high near 115 points.
But starting at 23:00 on the evening of the 13th, Beijing time, the market began to rebound unexpectedly. The three major U.S. stock indexes, , rose by more than 2% in a single day, and the S&P 500 has a full-day volatility of more than 5%, and the energy, technology and financial sectors have the highest growth rate.
"One of the possible reasons is that buying is automatically triggered near the 200-week moving average." A foreign investment bank's main brokerage business trader told reporters. After all, since the beginning of this year, the S&P 500 has fallen by nearly 25%, and the decline in September alone is close to 10%. The stock index has retreated from above 4,800 points to the 3,600 point range.
"We don't see much buying demand. Long funds are still holding their coins and waiting. hedge fund shows a slight sign of net buying , which may also explain the reversal of some markets, but what really dominated the big rebound may be the record ETF trading volume, which once rose as high as 44%, and the final trading volume on the day was 39%. "The above trader said.
Goldman Sachs mentioned that this wave of big rise also led to radical macro funds having short covers . This fluctuation also shows that the position of in all walks of life is very light (that is, it is difficult to sell further). In the past big rebounds, low-quality stocks often lead the way, but overnight, high-quality sectors rebounded, with non-profit technology sectors, Chinese stocks listed in and software stocks with overvalued valuations all underperformed.
"Inflation exceeded expectations year-on-year and month-on-month, but the index fell 2-3% at the opening, inducing short positions." Yuan Yuwei, a senior global macro trader, mentioned to reporters, "The rebound is still based on the path of inflation trading. Cyclic stocks are the strongest, growth stocks are weak, low-quality growth and the weakest new energy, and bond prices fall. In addition, European and American financial stocks rebounded sharply at the same time. The market began to believe that Credit Suisse will not induce systemic risks. However, financial stocks have no fundamental support for the rebound."
foreign market rebound is still fragile
The technical rebound after the continuous sharp drop explained the reversal of the US stock market, but the alarm was not removed.
10 is still the Fed rate hike window period (the next rate hike is November 3), so the market will pay more attention to the financial report season.Bank of America stock financial reports will be announced before the market trading on Friday, including JP Morgan Chase , Morgan Stanley , Citi , Bank of America and other giants. US retail sales data and University of Michigan consumer confidence index will be released Friday night.
Morgan Stanley Chief Investment Officer Michael Wilson stressed that before the market fantasy Fed's turn, it is more likely to come first, and that this recession is likely to intensify this and next quarter. Wilson believes that the current conditions for ending the bear market are not present. "The uncertainty arising from a series of macro risks (weakness in Europe, strengthening the US dollar, and hikes in interest rates) may lead to a lower earnings expectations."
JPMorgan Chase leads the financial report season. The bank with the largest asset size in the United States is regarded as a industry vane, with its stock price falling by more than 30% this year. One reason was that management was highly cautious about its outlook in July, when it suspended share buybacks in order to raise reserve funds. The Fed notified JPMorgan in the last round of stress tests to raise risk reserves from 3.2% to 4.0%, and the minimum CET1 ratio from 11.2% to 12.0%.
In the future, the impact of the Federal Reserve on the market will be difficult to decline. Mainstream institutions expect the Fed to raise interest rates to 4.6% to 4.8% next year. Interest rates have climbed by 325BP this year.
UBS mentioned to reporters that the peak of the Federal Reserve's hawkish stance still has a way to go. The U.S. core personal consumption expenditure price index (PCE) rose 0.6% month-on-month in August, bringing the annual growth rate to 4.9% higher than expected. "We continue to believe that before considering a change in position, the Fed needs to see signs of a significant decline in U.S. inflation (i.e., core PCE fell by 0.2% or less month-on-month at least three months) and signs of cooling of the labor market. The September non-farm employment report shows that the US labor market is still tight."
growth stocks lead the rebound of Chinese stock market
14, the Chinese stock market rebounded sharply. In addition to being driven by the rebound of international markets, First Financial reported at the beginning of this week that October was the Fed's interest rate settlement window period , and the Chinese stock market, whose valuation has hit a new low this year, may usher in a rebound window period. The expectation of loose policy and the continued decline of LPR (loan quotation rate) will also support the bond market's long sentiment.
On Friday, the three major indexes opened high and closed high today. The collective volume rose sharply. The Shanghai Composite Index rose more than 2% in the afternoon, and the ChiNext Index rose more than 4% at one point. Pharmaceutical stocks set off a surge in daily limit, with the medical device sector index rising by 9%; the photovoltaic sector rose in the afternoon, and Longi Green Energy hit the daily limit.
"With the ease of expectations of centralized procurement policies, innovative drug negotiations, and the joint catalysis of external support from the US stock market and the boost in the third quarter performance of leading companies, Pharmaceuticals achieved a big rise today." Morgan Stanley Huaxin Fund said that after a long period of adjustment, the valuation and institutional holdings of were both at a historical low, which fully reflects the market's pessimistic expectations, but the medium- and long-term development trend of the pharmaceutical industry is still stable, and it has now entered the medium- and long-term value range, focusing on the medium- and long-term growth opportunities of pharmaceuticals.
In terms of the overall rebound of the market, Wu Zhaoyin, director of macro strategy at AVIC Trust , mentioned to reporters that the stock market has fallen for three consecutive months, and negative news at home and abroad have been fully priced, but the market turns a blind eye to the positive. "This year's average daily trading volume is 1.3 trillion yuan, and only half is left at the beginning of the week. The trading volume of and the turnover rate of the Shanghai Stock Exchange and the Shenzhen Stock Exchange both fell to the low point since 2020. This also shows that the power of short selling is very weak. As long as incremental funds enter the market, there will be a significant rebound. The key is that after the stock market has continued to fall, there is a strong technical demand for rebound."
At present, the growth style represented by new energy has begun to dominate again. Morgan Stanley said long fund managers have a more balanced view of the value and growth sectors, and have previously significantly reduced their holdings in growth stocks due to soaring risk aversion sentiment. "The current exposure to growth styles has been selectively added, such as electric vehicles ( BYD , Ideal Auto ) and e-commerce ( Alibaba , Yum China )."The above-mentioned institutions mentioned that most fund managers have relatively high cash exposure, so the relative returns are under certain pressure compared to the performance benchmark (MSCI China Index). In other words, because fund managers used to have low stock allocation markets, in order to catch up with the performance benchmark, they must increase their exposure to win a rebound.
