Event:
At 3:00 a.m. Beijing time on Thursday (January 27), the Federal Reserve announced an interest rate resolution to keep the interest rate unchanged at 0% - 0.25%. The Federal Reserve said that asset purchase would end in early March. The Fed stressed that it would appropriately raise the federal funds rate soon and said it would start to reduce its balance sheet after raising interest rates. After the Fed issued a policy statement, fed fund futures still hinted that interest rates would be raised four times in 2022.
Comments:
The main points of this meeting are as follows: 1. The taper path remains unchanged, the Federal Reserve keeps the benchmark interest rate unchanged at 0% - 0.25%, the monthly asset purchase scale will be reduced by $30 billion, and the asset purchase will end in early March. 2. It is emphasized to raise interest rates soon and reduce debt soon after the interest rate increase. The process of debt reduction is flexible. The Fed said that in the long run, the Fed hopes to hold mainly US Treasury bonds. The reduction will be carried out through reinvestment. If there are risks that may hinder the achievement of the committee's objectives, the committee will be prepared to adjust its monetary policy position appropriately. The reduction table is "predictable". In assessing appropriate monetary policy positions, the committee will continue to monitor the impact of follow-up information on economic prospects. Prepare to adjust and reduce any details of the balance sheet according to economic and financial development. 3. It must be high inflation. The imbalance between supply and demand leads to high inflation. The imbalance between supply and demand related to the covid-19 pneumonia epidemic and the reopening of the economy continue to lead to an increase in inflation.
The factor that really led to the readjustment of the market after the meeting was Powell's press conference. After the interest rate resolution, US stocks fell, precious metals adjusted slightly, and the US dollar index rose. At the subsequent press conference, Powell said that the Fed's policy has been adapting to the changing form, the upward risk of inflation is still there, the monetary policy requires (we maintain) humility and (action) agility, and the Fed will reduce its balance sheet in a predictable way. At the same time, although the (overall) range of interest rate hike has not been determined, However, the possibility of raising interest rates at each FOMC meeting cannot be ruled out. Overall, the interest rate resolution, including the press conference after the meeting, only fulfilled the tightening wording of Fed officials since the meeting in December 2021, and the hawkish degree did not deepen. The subsequent evolution path of inflation will become the key for the fed to raise interest rates. The node is whether we can see the progress or evidence of inflation decline before June.
With the improvement of the job market and high inflation, the Fed has greater policy pressure. After the unemployment rate of the United States further decreased to 3.9% in December 2021 (3.5% in January 2020 before the epidemic), the CPI increased by 7% year-on-year in December 2021, setting a new high in nearly 40 years. The high-frequency employment and inflation data continued to rise. The weekly number of initial and renewed claims for unemployment benefits since January has rebounded slightly, but it is far less than the explosive growth of the number of new people in the epidemic, and the crude oil price has set a new high since January. In the context of high employment and inflation, the market has a higher voice for the Fed's tightening.
The impact of interest rate hike on asset prices is not absolutely negative. Looking back on the last round of interest rate hike cycle: in the game stage of interest rate hike expectation (the first interest rate hike - the landing of interest rate hike), the strength of interest rate hike expectation is accompanied by the strength of us dollar index, the adjustment of emerging market stock index, gold, crude oil and CRB composite index (at least the rise and fall performance of monthly level), and US stocks fluctuate, US bond interest rates did not show an obvious upward trend. After the fact that the interest rate increase was implemented, the US bond interest rate trend rose, the US dollar index peaked and fell, the emerging market stock index and bulk commodities stabilized and rebounded, and gold did not adjust significantly. At present, the core of the transaction is the evolution of tightening expectations, but it should also be pointed out that this round is not only the advance of interest rate increase expectations, but also the impact of table reduction expectations. Therefore, it is not ruled out that the interest rate meeting in January will bring a new round of adjustment risk.
The impact of table contraction on financial assets is more obvious. From the impact of table contraction on asset prices: the last round of table contraction occurred in October 2017, about two years after the official interest rate hike in December 2015. Among them, the Federal Reserve released the signal of table contraction on the meeting minutes in April 2017 and disclosed the QE scheme at the interest rate meeting in June 2017, Finally, it was officially announced at the interest conference in September 2017 that the table reduction was launched. The impact of the scale reduction on asset prices is relatively direct. The balance sheet of the Federal Reserve has a significant correlation with financial assets, a significant positive correlation with US stocks as high as 0.9, a negative correlation with US bond interest rates as high as -0.849, and a certain positive correlation with Shanghai and Shenzhen 300 of 0.68; However, the correlation between the Fed's balance sheet and commodities was low, recording 0.56.
From the seasonal point of view, the yield of holding positions is not high. First of all, in the past decade, the first trading day after the Spring Festival, the performance of the CSI 300 was weak. After the festival, we can grasp the opportunity of bargain hunting and long. In the past decade, the stock indexes performed well in the five trading days and 20 trading days after the spring Festival; Commodities also need to be alert to the adjustment risk before the festival. The shutdown of downstream enterprises during the holiday will usher in the seasonal accumulation of Chinese industrial products. The performance of wind nonferrous metals, non-metallic building materials and coking coal and steel mines is relatively weak on the first trading day and 20 trading days after the festival.
Generally speaking, we believe that this month's interest rate meeting did not give a stronger tightening signal. The key to the follow-up Fed's policy still depends on the evolution path of inflation. We continue to suggest that the stock index, commodities and other risky assets should be light or short for the holiday to avoid market risks, and then seize the opportunity to do more when it is low after the holiday.
