As a result, global stock markets led by US stocks have almost entered a "surrender-style" selling stage. The S&P 500 closed below 3,700 points last Friday, and almost fell below 3,636 points lower than the previous six-month low.

The hawkish degree of the Federal Reserve is strengthening every month until the market no longer has a trace of illusion. As a result, global stock markets led by US stock have almost entered a "surrender-style" selling stage. The S&P 500 closed below 3,700 points last Friday, and almost fell below 3,636 points lower than the June-year low.

International Investment Bank Goldman Sachs has recently lowered its annual target for US stocks, cutting the S&P 500's forecast point from 4300 points to 3600 points, and warning that it may fall to 3150 points in the "hard landing" recession scenario. On the other end of

, US bond yield soared under the rush of interest rate hikes. Based on the full 350 basis points (BP) interest rate hikes this year, institutions expect to raise interest rates by 125BP by the end of the year, pushing the federal funds rate to a restricted range of 4.5% to 4.75%, and there is no hope of a rate cut next year. As a result, the bond market began to attract more funds to influx with high yields, and a "big shift" of stock and bond funds may have just begun.

The stock market is close to "surrender" selling

Last Thursday, the hawkish statement of the Federal Reserve triggered a new round of market selling, and fighting inflation became the only goal.

html In the early morning of the 22nd, the Federal Reserve raised interest rates by 75BP as expected, and increased its interest rate forecasts from 2022 to 2024, from 3.4%, 3.8%, and 3.4% to 4.4%, 4.6%, and 3.9%, respectively, completely crushing the fantasy of interest rate cuts in 2023, resulting in a sharp drop in US stocks. Last Friday, the dollar index officially broke through the 113 mark and closed at 112.85.

Goldman Sachs expects that interest rates will be raised by 75BP and 50BP in November and December, respectively, up 25BP from the previous period. Earlier, RayDalio, founder of Bridgewater Fund , issued a pessimistic warning. He expects that as the Federal Reserve continues to fight inflation through a sharp interest rate hike (interest rates are close to the upper end of the 4.5% to 6% range), a sharp contraction of private credit will cut spending, and US stocks will plummet by 20%.

The ultimate interest rate in the future will be at least close to 5%. Interest rates are inversely proportional to valuation, so the stock market is still experiencing "killing valuations".

A month ago, when the US stock market was still immersed in a bear market rebound, Michael Wilson, chief U.S. stock strategist at Morgan Stanley , warned that the cost-effectiveness of the US stock market was extremely low, and at that time, Morgan Stanley's annual point forecast was only 3,800 points. Wilson recently said there was further evidence that inflation would keep the Fed and other central banks strong, and companies have begun to admit that resistance against profits is accumulating.

"We still believe that earnings expectations are too high, especially in 2023. At the same time, the valuation does not reflect the growth risks we predict... Currently, the risk premium for S&P 500 stocks is still 120 basis points lower than fair value (the risk premium that allocates stocks should give relative to bonds)." The institution believes that based on the yield on the 10-year U.S. Treasury bonds (more than 3.5%), the fair value price-to-earnings ratio of US stocks has fallen to just below 14 times, while the current actual valuation of S&P 500 is still above this level.

Goldman Sachs, which was previously optimistic, also urgently lowered its forecast. The agency said that both the nominal and real yields of 10-year U.S. Treasury bonds have soared by 40BP over the past two weeks, while the S&P 500 has fallen by 9%. "The current target price of S&P 500 at the end of 2022 is reduced to 3,600 points (previously 4,300 points), based on the assumption that the U.S. economy has achieved a soft landing. We maintain our forecast for a 3% increase in earnings per share, but as interest rates rise, the P/E ratio drops to 15 times (previously 18 times). If investors price the recession, EPS is expected to fall 11% in 2023, and S&P 500 will fall to 3,150."

also believes that although the CPI exceeded expectations in August (8.3%, higher than expected 8.1%), it has actually declined from last month (8.5%), and inflation leading indicators (rentals, used cars) suggest that inflation will continue to decline.

However, Xu Changtai, chief market strategist at Morgan Asset Management in Asia, told reporters, "No one will doubt that inflation will peak and fall in the next 12 to 18 months, but the key lies in the speed and amplitude of the downward trend. Gasoline prices are falling, which helps reduce inflation expectations.

But ultimately inflation will take longer to fall to the Fed's target (2%), especially if the Russian-Ukrainian conflict continues.

The hawkish degree of the Federal Reserve is strengthening every month until the market no longer has a trace of illusion. As a result, global stock markets led by US stock have almost entered a "surrender-style" selling stage. The S&P 500 closed below 3,700 points last Friday, and almost fell below 3,636 points lower than the June-year low.

International Investment Bank Goldman Sachs has recently lowered its annual target for US stocks, cutting the S&P 500's forecast point from 4300 points to 3600 points, and warning that it may fall to 3150 points in the "hard landing" recession scenario. On the other end of

, US bond yield soared under the rush of interest rate hikes. Based on the full 350 basis points (BP) interest rate hikes this year, institutions expect to raise interest rates by 125BP by the end of the year, pushing the federal funds rate to a restricted range of 4.5% to 4.75%, and there is no hope of a rate cut next year. As a result, the bond market began to attract more funds to influx with high yields, and a "big shift" of stock and bond funds may have just begun.

The stock market is close to "surrender" selling

Last Thursday, the hawkish statement of the Federal Reserve triggered a new round of market selling, and fighting inflation became the only goal.

html In the early morning of the 22nd, the Federal Reserve raised interest rates by 75BP as expected, and increased its interest rate forecasts from 2022 to 2024, from 3.4%, 3.8%, and 3.4% to 4.4%, 4.6%, and 3.9%, respectively, completely crushing the fantasy of interest rate cuts in 2023, resulting in a sharp drop in US stocks. Last Friday, the dollar index officially broke through the 113 mark and closed at 112.85.

Goldman Sachs expects that interest rates will be raised by 75BP and 50BP in November and December, respectively, up 25BP from the previous period. Earlier, RayDalio, founder of Bridgewater Fund , issued a pessimistic warning. He expects that as the Federal Reserve continues to fight inflation through a sharp interest rate hike (interest rates are close to the upper end of the 4.5% to 6% range), a sharp contraction of private credit will cut spending, and US stocks will plummet by 20%.

The ultimate interest rate in the future will be at least close to 5%. Interest rates are inversely proportional to valuation, so the stock market is still experiencing "killing valuations".

A month ago, when the US stock market was still immersed in a bear market rebound, Michael Wilson, chief U.S. stock strategist at Morgan Stanley , warned that the cost-effectiveness of the US stock market was extremely low, and at that time, Morgan Stanley's annual point forecast was only 3,800 points. Wilson recently said there was further evidence that inflation would keep the Fed and other central banks strong, and companies have begun to admit that resistance against profits is accumulating.

"We still believe that earnings expectations are too high, especially in 2023. At the same time, the valuation does not reflect the growth risks we predict... Currently, the risk premium for S&P 500 stocks is still 120 basis points lower than fair value (the risk premium that allocates stocks should give relative to bonds)." The institution believes that based on the yield on the 10-year U.S. Treasury bonds (more than 3.5%), the fair value price-to-earnings ratio of US stocks has fallen to just below 14 times, while the current actual valuation of S&P 500 is still above this level.

Goldman Sachs, which was previously optimistic, also urgently lowered its forecast. The agency said that both the nominal and real yields of 10-year U.S. Treasury bonds have soared by 40BP over the past two weeks, while the S&P 500 has fallen by 9%. "The current target price of S&P 500 at the end of 2022 is reduced to 3,600 points (previously 4,300 points), based on the assumption that the U.S. economy has achieved a soft landing. We maintain our forecast for a 3% increase in earnings per share, but as interest rates rise, the P/E ratio drops to 15 times (previously 18 times). If investors price the recession, EPS is expected to fall 11% in 2023, and S&P 500 will fall to 3,150."

also believes that although the CPI exceeded expectations in August (8.3%, higher than expected 8.1%), it has actually declined from last month (8.5%), and inflation leading indicators (rentals, used cars) suggest that inflation will continue to decline.

However, Xu Changtai, chief market strategist at Morgan Asset Management in Asia, told reporters, "No one will doubt that inflation will peak and fall in the next 12 to 18 months, but the key lies in the speed and amplitude of the downward trend. Gasoline prices are falling, which helps reduce inflation expectations.

But ultimately inflation will take longer to fall to the Fed's target (2%), especially if the Russian-Ukrainian conflict continues."In his opinion, the challenge is that the downward trend of inflation will be slow, which will make the Fed more hawkish to ensure that inflation can continue to decline. At the same time, the Fed's move is also to regain its credibility.

funds gradually shifted to the bond market

The reason for the sell-off of the stock market is to summarize it - inadequate cost-effectiveness. The reference system is bonds. In the past few years, bonds have lacked attractiveness, which is undoubtedly because coupon compensation is extremely low in low interest rates. But now, everything is different. "TINA (Thereisnoalternatives, no other option except investing in stocks) has dominated the market for a long time, but it is beginning to no longer exist. Short-term bond yields are now attractive. "John Petrides, investment manager at Tocqueville Asset Management, told the media. How attractive is

? As of the close of last Friday, the yield on one-year Treasury bonds was 4.112% (a 50-fold increase in one year, less than 0.1% at this time last year), the two-year Treasury bonds were 4.2032%, and the ten-year Treasury bonds were 3.678%. The annual increase in the one-year Treasury bonds was 50 times. Currently, the yield on one-year and ten-year Treasury bonds in China is 1.779% and 2, respectively .708%. Rapid interest rate hikes triggered the fastest surge in the U.S. short-term interest rates, while recession expectations deepened the inverted yield curve.

Senior analyst Tony Sycamore told reporters, "From the perspective of tactical asset allocation, investors can invest in two-year Treasury bonds with a yield of 4.15%, while the dividend yield of S&P 500 constituent is only 1.85% (not considering the rise and fall of the stock market). Another attraction of two-year Treasury bonds is that they are much less volatile than stocks. Second, the Fed's more aggressive interest rate path increases the possibility of a hard landing in the U.S. economy. ”

In overseas markets, short-term Treasury bond ETF has attracted a large amount of capital influx. As of a week ago, data showed that JPMorgan ultra-short-yield ETF has attracted more than $3.5 billion in new funds this year; BlackRock's iShares short-term Treasury bond ETF has received nearly $10 billion in new funds. As long-term bonds will be more vulnerable to interest rate hikes (rate hikes will lead to long-term bonds Prices fall sharply), funds tend to seek stable returns in short-term bonds. For example, by price calculation, the JPMorgan Chase fund's earnings have been almost flat this year, while S&P 500 has fallen nearly 20% since the beginning of the year.

Xu Changtai told reporters, "Bonds with two-year and even shorter durations are less sensitive to interest rate changes. Even if interest rate hikes continue, they have shown the allocation value, because coupon compensation exceeds 4%. But long-term bonds are relatively dangerous. The current 10-year U.S. Treasury yield exceeds 3.6%. If the yield climbs by 30BP, it will almost eat up all coupons in the next 12 months. In contrast, short-term debt is a good place to go. "

US dollar impact is difficult to eliminate in the short term

US bond yields will continue to rise as interest rate hikes deepen, which also means that the strong US dollar has not ended, and the impact on global markets, especially emerging markets, is still continuing.

Invesco Asia Pacific global market strategist Zhao Yaoting told reporters that by the end of this year, the US interest rate is expected to reach 4.4% to 4.5%, and At that time, core inflation may approach 6% to 6.5% (far exceeding the target value of 2%. The yield on U.S. 10-year bonds may approach around 5%. Before the 2008 global financial crisis, 10-year bonds remained at 5.1% for 15 consecutive years, when the average level of CPI was about 2.7%.

is unique, Wu Zhaoyin, director of macro strategy at China AVIC Trust, told the news. The U.S. Treasury yields are generally ahead of the U.S. federal benchmark interest rate peak. If the interest rate peaks in the first half of next year, then the U.S. bond yields will probably peak at the end of this year, and the corresponding pressure on RMB depreciation may also continue until the end of this year.

The non-US currencies have basically fallen against the US dollar in the past year. In the past week, the U.S. dollar index once broke through the 113.19 mark. This is What does it mean? The US dollar index has risen by more than 21% over the past year, hitting a new high since May 2002. The most recent previous high is around 120 in January 2002. The US dollar has appreciated 17.43% against the euro, 20.84% ​​of the pound, 10.54% of the Australian dollar, 21.15% of the Korean won, 29.95% of the Japanese yen, and 10.36% of the RMB.

As of the close of last week, the US dollar/RMB has exceeded 7.1, and the decline has not stopped.It is worth mentioning that on September 21, the RMB mid-price against the US dollar was 6.9798, and the spot trading price on the day hit 7.106, with a deviation of nearly 1.6%, almost touching the lower limit of single-day fluctuations.

Starting from March 2014, as a key step in the exchange rate reform , the fluctuation of the RMB trading price against the US dollar in the interbank spot foreign exchange market has expanded from 1% to 2%. Several traders and analysts from Chinese and foreign banks told reporters that as of September 22, the central bank has set the RMB mid-price at a level higher than the model's forecast for nearly 21 consecutive days. Bloomberg data shows that the negative deviation on September 22 is the largest since Bloomberg released the mid-price forecast data since 2018, reaching about 850 points (that is, the mid-price on the 22nd should be 7.0648 according to the formula).

It is not difficult to see from the mid-price that the central bank continues to release stable signals. However, under the depreciation of non-US currencies, the current valuation of the RMB has not been underestimated, so all walks of life believe that it is unnecessary to re-intervent and let the RMB appreciate. Institutions generally believe that the mid-price will still send a stable signal in the future, and the central bank's toolbox is still sufficient.

Trade surplus and international capital inflows to deploy Chinese stocks and bonds are key variables in exchange rate and will also dominate the trend of the RMB in the future. Given the risk of recession in overseas economies, positive factors from the outside sector may weaken. Barclays expects China's current account surplus in 2023 may narrow from US$337 billion (1.9% of GDP) to US$249 billion (1.3% of GDP) in 2023, and the trade surplus will drop from US$945 billion in 2022 to US$869 billion in 2023, but this is still a relatively high position. The changes in investment funds in

cannot be ignored. From February to August this year, the RMB bond held by foreign capital decreased by US$82.8 billion. However, the rate of this capital outflow may slow down. Foreign capital outflows in the stock market are not that severe. Although northbound funds have been relatively sluggish recently, the net inflow of 46.88 billion yuan for the whole year, lower than the US$400 billion (historical high) for the whole year, and the net outflow of 16.563 billion yuan since September.

JPMorgan made a comparison between China and Japan (assets). The Nikkei Topix stock index began to experience a decline of nearly 14 years in December 1989, reaching a price-to-earnings ratio of 16 times. Now the Chinese stock market is 10 to 11 times, and the cost-effectiveness is quite high. The advantage of low valuation is that the market has priced many foreseeable risks or discounted for .

It is worth mentioning that on September 21, the RMB mid-price against the US dollar was 6.9798, and the spot trading price on the day hit 7.106, with a deviation of nearly 1.6%, almost touching the lower limit of single-day fluctuations.

Starting from March 2014, as a key step in the exchange rate reform , the fluctuation of the RMB trading price against the US dollar in the interbank spot foreign exchange market has expanded from 1% to 2%. Several traders and analysts from Chinese and foreign banks told reporters that as of September 22, the central bank has set the RMB mid-price at a level higher than the model's forecast for nearly 21 consecutive days. Bloomberg data shows that the negative deviation on September 22 is the largest since Bloomberg released the mid-price forecast data since 2018, reaching about 850 points (that is, the mid-price on the 22nd should be 7.0648 according to the formula).

It is not difficult to see from the mid-price that the central bank continues to release stable signals. However, under the depreciation of non-US currencies, the current valuation of the RMB has not been underestimated, so all walks of life believe that it is unnecessary to re-intervent and let the RMB appreciate. Institutions generally believe that the mid-price will still send a stable signal in the future, and the central bank's toolbox is still sufficient.

Trade surplus and international capital inflows to deploy Chinese stocks and bonds are key variables in exchange rate and will also dominate the trend of the RMB in the future. Given the risk of recession in overseas economies, positive factors from the outside sector may weaken. Barclays expects China's current account surplus in 2023 may narrow from US$337 billion (1.9% of GDP) to US$249 billion (1.3% of GDP) in 2023, and the trade surplus will drop from US$945 billion in 2022 to US$869 billion in 2023, but this is still a relatively high position. The changes in investment funds in

cannot be ignored. From February to August this year, the RMB bond held by foreign capital decreased by US$82.8 billion. However, the rate of this capital outflow may slow down. Foreign capital outflows in the stock market are not that severe. Although northbound funds have been relatively sluggish recently, the net inflow of 46.88 billion yuan for the whole year, lower than the US$400 billion (historical high) for the whole year, and the net outflow of 16.563 billion yuan since September.

JPMorgan made a comparison between China and Japan (assets). The Nikkei Topix stock index began to experience a decline of nearly 14 years in December 1989, reaching a price-to-earnings ratio of 16 times. Now the Chinese stock market is 10 to 11 times, and the cost-effectiveness is quite high. The advantage of low valuation is that the market has priced many foreseeable risks or discounted for .