Powell's "bailout"
On the 24th, local time, the day after attending the hearing of the House Financial Services Committee, Federal Reserve Chairman Paul responded to the issues of US bond yield and inflation that are of great concern to the market. Powell said on the same day that the increase in US bond yields was due to the expected recovery of inflation and economic growth. Inflation is not a problem to worry about at present. Under the influence of base utilities and soaring demand after the reopening of the US economy, the Fed does expect inflation to rise, but it still "has the tools to deal with it".
"The other is the price revaluation that affects the securities market," said Yang Shuiqing. "We often regard national debt as a risk-free interest rate. The yield of ten-year treasury bonds is a very good target in treasury products, and the rise of its yield will lead to the correction of other asset prices. In addition, it may also lead to pressure on gold. "
This has been proved. On the 23rd, local time, on the first day of Powell's hearing, the three major American stock indexes collectively opened lower, and all fell rapidly after the opening. The Nasdaq once fell nearly 4%, and technology stocks fell across the board. The star stock Tesla once fell more than 13%. However, with Powell's voice that "loose monetary policy will continue to exist", US stocks fought back and the three major indexes finally closed up. The same thing happened again the day after the hearing. On the 24th, the US stock market opened lower and then turned higher. At the close, the Standard & Poor's 500 index rose more than 1. 14%, the Nasdaq index rose about 0.99%, and the Dow rose 1.35%.
For no other reason, Powell continued to "save the market". For example, at the hearing, Powell once again stressed that the Federal Reserve's bond purchase plan will maintain the current speed until the actual data show that the US economy is close to the inflation and employment target data. The Fed wants to see inflation expectations stabilize at 2%, not below this target. The Fed is confident to achieve this goal, but this process may take three years or more.
The price of releasing water
For a long time, the outside world always felt that Powell's statement was a bit too stable, but little did they know that this expression of "Tai Chi" was also an experience gained from eating lessons. The most obvious example is the "shrinking panic" caused by Bernanke eight years ago. In 20 13, Bernanke, then chairman of the Federal Reserve, only hinted in his speech that he might start to reduce the purchasing power of quantitative easing assets, which triggered a shocking selling tide in the US bond market, causing the yield of 10-year US bonds to soar from 1.5% to 3% within five months.
Powell wants to avoid repeating Bernanke's mistakes, which indirectly proves a problem. Compared with the rise in US bond yields, the market is ultimately worried about the contraction of easing policies. "The market is uneasy about more stimulus measures, worried about rising inflation risks, and worried about quantitative easing and code reduction." For the recent situation, Gennadiy Goldberg, senior strategist of US interest rate at TD Securities, said so.
Generally speaking, the higher the inflation expectation, the steeper the yield curve of government bonds, because investors need to pursue higher yield of government bonds to compensate for the inflation risk. At present, the global expectation of inflation has reached the so-called "panic" level, and the most direct reason is the release of water, among which the release of water by the Federal Reserve can be called "a must".
With Biden coming to power, the $65,438 +0.9 trillion stimulus plan entered the sprint stage. On 23rd local time, Hoie, the No.2 Democrat in the US House of Representatives, just mentioned that the House of Representatives will vote on the $65,438 +0.9 trillion anti-epidemic rescue case launched by President Biden on February 26th. Prior to this, the Federal Reserve has announced a de facto open asset purchase plan and started unlimited quantitative easing.
Water release, unlimited water release, this is the signal of the release of US fiscal policy and monetary policy, and it is almost the main theme of global central banks in the past year. Statistics show that in 2020, the balance sheets of the Federal Reserve, the European Central Bank and the Bank of Japan all expanded by more than 30%, with a total scale of 8 trillion US dollars.
At the same time, the hope of economic recovery brought by mass vaccination has once again pushed up inflation expectations. Agence France-Presse reported on 20th that at least 107 countries and regions in the world have received more than 200 million doses of COVID-19 vaccine.
Resolve the crisis in advance
The chain reaction caused by rising inflation expectations is too obvious. Recently, oil prices have not only come out of the dark moment, but also soared. At the close of 24th, the futures price of light crude oil for April delivery in the New York Mercantile Exchange rose by $65,438 +0.55 to close at $63.22 per barrel, with an increase of 2.5 1%. London Brent crude oil futures for October/April delivery in 2002/KLOC rose by $65,438+$0.67 to close at $67.04 per barrel, with an increase of 2.55%. Under the combined force of rising oil prices, copper prices performed strongly, with overnight COMEX copper price of 4.3 165 USD/lb, an increase of 2.43%.
It is also under this large-scale water release that investors begin to worry about whether the tightening of financial conditions and the attempt to normalize monetary policy will cause a new crisis once unconventional monetary policy is started and withdrawn. Although Powell has always stressed keeping loose, it is a bit like drinking poison to quench thirst.
"Powell has always wanted to stabilize the market and stabilize expectations. Every time he appeared, he said that he would continue to drain water. At the end of the day, he may lose his prestige. " In Yang Shuiqing's view, Powell's statement may bring some boost at the beginning, but it will be invalid if it is said too much.
In fact, the market has actually resolved the danger in advance. Yang Shuiqing believes that including the recent rise in the yield of US bonds, it also means that although the Fed is still emphasizing inaction, the market has made predictions in advance, which has been reflected in the price changes in the whole market. This is a gradual process, especially for hedge funds, which will certainly do some hedging.
Yang Delong also mentioned that the mission of the Federal Reserve is to control inflation on the one hand and ensure full employment on the other. If inflation rises, the Fed will have to adjust its loose monetary policy, which is also what investors are worried about, that is, whether inflation expectations will heat up and whether monetary policy will be slightly tightened. In fact, the fundamentals of the global economy have not recovered, the actual economic growth rate is not good, and the epidemic in the United States and Europe has not been completely and effectively controlled. Therefore, from an economic point of view, it really should not be tightened, but the worry is that it should be tightened from an inflation point of view.
Worry is worry, but in the short term, the tightening of the Fed's monetary policy may be unrealistic. It is understood that the Fed acts according to economic indicators. For example, the new york Fed's Wei Index is composed of 65,438+065,438+0 indicators, including starts. At present, this index is still negative. We need to see when it will turn positive. It used to be a value above 1.5. It is expected that the contraction of monetary policy will be achieved by the end of this year at the earliest.
As for the time to raise interest rates in the market, it may be the end of 2022. The data shows that in the federal funds rate futures market, the probability of betting that the Fed will raise interest rates as soon as the end of 2022 has reached 70%, and this probability was still 50% last week.