Ping An View:
Weekly focus brief: 1) the United States is suspected of "hyping" the Russian Ukrainian war. The United States believes that Russia has decided to "invade" Ukraine, and the "invasion" is expected to begin next week. We believe that the Biden administration may have the political need to transfer contradictions to the outside world under the background of China's low support rate recently. However, the conflict between Russia and Ukraine may push up oil prices, which is contrary to the Biden government's vision of curbing inflation. We need to be vigilant against the risk of sharp fluctuations in asset prices such as oil prices. 2) US inflation exploded again, and the market expectation of raising interest rates rose again. The 10-year US bond yield rose above the 2% mark. According to CME data, the market expects the probability of the Fed raising interest rates by 50bp in March to jump to 85% from 24% the day before yesterday. The Federal Reserve is expected to hold an unconventional closed door meeting on February 14, which does not rule out the possibility that the Federal Reserve will raise interest rates in advance before the March meeting. We believe that the Fed should tighten faster rather than slower. It is expected that the Fed will raise interest rates by 50bp in March (if it did not raise interest rates in advance). But in the second half of the year, the Fed's tightening pace is not necessarily as radical as the current market expected. We currently expect the Federal Reserve to raise interest rates by 150bp throughout the year and raise the 10-year US bond interest rate forecast to 2.5% at the end of the year. 3) The European central bank played down the expectation of raising interest rates. Following the "Hawking" of the European Central Bank on February 3 and the soaring interest rate of European bonds, the attitude of the European central bank turned dove this week in order to appease the market. According to Reuters, most economists expect the ECB to raise interest rates for the first time at the end of this year or early 2023. We believe that it is still feasible and necessary for the ECB to maintain monetary easing. However, the market is wary of the policy shift of the European Central Bank, and the European bond interest rate will remain sensitive to the upward trend. Then, it may be difficult for the European and American interest rate spread to expand significantly, and the depreciation pressure of the euro exchange rate will further decline. In this context, the allocation value of European stocks still exists, which can be seen from the strong rebound of European stocks this week.
Overseas economic tracking: 1) the CPI of the United States in January rose by 7.5% year-on-year, higher than the expected value of 7.3% and the previous value of 7.0%; Core CPI was 6% year-on-year, higher than the expected value of 5.9% and the previous value of 5.5%. Inflation in the United States in January was mostly caused by the rise in energy caused by geographical conflict and Omicron virus, the run on medical resources, and the insufficient supply of goods and services. 2) The consumer confidence index in Michigan deteriorated significantly in February, mainly due to rising prices. However, the latest American Chamber of commerce consumer confidence index is still strong. U.S. consumer confidence in non durable goods is OK, so there is no need to worry too much about the U.S. consumer outlook. 3) The UK's economic growth in the fourth quarter of 2021 was higher than expected, and the annual GDP growth rate was as high as 7.5%, or it was related to its loose epidemic prevention policy, which had an encouraging effect on accelerating the unsealing of other regions; In the context of strong economy and high inflation, the Bank of England may further open the space for raising interest rates. 4) The global epidemic growth rate continues to decline, more regions try to unseal, and the United States is about to cover covid-19 vaccination for children under the age of 5.
Global Asset Performance: stock markets, US stocks under pressure, emerging and European stocks rebounded. The rise of US bond interest rate triggered the switching of US stock style and exacerbated the pressure on US stock valuation. However, according to our latest calculation, the excess return of S & P 500 relative to 10-year US bonds remains above 2%. In the bond market, the short-term interest rate of US bonds soared, and the interest rate of two-year US bonds rose above 1.6%. Recently, the interest rate of us high-yield bonds jumped, reflecting the decline of risk appetite. European bond interest rates fell slightly this week. Commodities, most varieties closed up this week, Brent crude oil broke the $95 mark, risk aversion pushed up the price of precious metals, and China's black series "made a good start". In the foreign exchange market, the US dollar index returned to 96, but it was mainly due to the risk aversion demand caused by the news of the war, and the expectation of raising interest rates did not have a strong stimulating effect on the US dollar. We suggest that the dollar in this round of fed interest rate hike cycle may not be strong.
