The Federal Reserve’s interest rate meeting will be held on December 16, and the probability of this meeting will be advanced to March 2022. In the past two weeks, Fed officials have been “Hawking” one after another, except that the Fed chairman said he would abandon the wording of “temporary inflation” and said he would consider accelerating the reduction of bond purchase to deal with high inflation. In addition to US Federal Reserve Chairman Powell, Cleveland Federal Reserve Chairman mester, Atlanta Federal Reserve Chairman Bostick and San Francisco Federal Reserve Chairman Daley made it clear that it is appropriate to end bond purchase in advance to the end of the first quarter and the beginning of the second quarter of next year. Combined with the year-on-year increase of 6.8% in the CPI of the United States in November, setting a new high in recent 39 years, it is expected that the probability of this meeting will be advanced to March 2022.
At present, the market is pricing, inflation peaked and fell. However, it should also be pointed out that although the US October CPI announced on December 10 hit a new high of nearly 39 years, the trend of asset prices is pricing inflation peaking and falling. After the data were released, the 10-year US bond interest rate fell from a high of 1.52% to 1.47%. The implied interest rate of US federal interest rate futures, which represents the market’s expectation of raising interest rates, also fell. In addition, US stocks also rose further. High frequency price data also verify that inflation will peak and fall, and price data such as crude oil, natural gas and sea freight rates have also fallen to varying degrees since the peak in October. Therefore, from this perspective, the impact of the Fed’s accelerated reduction of bond purchase process is expected to be limited, and the market has been basically priced.
The interest rate meeting of the European Central Bank on December 16 may affect the short-term trend of the US dollar. Recently, officials of the European Central Bank have mostly continued the idea of loose policy. Combined with the recent new confirmed cases in Europe, they continue to set an all-time high. It is expected that the European interest rate meeting in December will not speed up the tightening process. However, it should also be pointed out that the rising inflation is also compressing the policy space of the European Central Bank. Once the speech of accelerating tightening exceeds expectations, it may reverse the strong trend of the short-term US dollar.
In the second half of 2022, we can focus on the allocation opportunities under the interest rate increase cycle. In the expected strengthening stage of interest rate increase, the US dollar index will strengthen, the emerging market stock index, gold, crude oil and overall commodities will be adjusted, and the US bond interest rate has not shown an obvious upward trend; After the interest rate hike boots landed, the US bond interest rate started an upward trend, the US dollar index peaked and fell, and the emerging market stock index stabilized and rebounded.
First, we currently expect the fed to raise interest rates only once next year. From the perspective of the implied policy interest rate of the federal funds rate futures, in the last interest rate increase cycle from 2015 to 2018, the market overestimated the interest rate increase range in the early stage of the interest rate increase and underestimated the interest rate increase range in the late stage of the interest rate increase: at the beginning of 2015, the market is expected to raise the interest rate twice in the whole year, and the federal funds rate will be raised from 0.25% to 0.75%. However, the fact is that the Federal Reserve knows that it will only raise the interest rate once to 0.5% at the end of 2015. At the beginning of 2018, the market expected to raise interest rates twice, and the federal fund interest rate was raised from 1.5% to 2%. In fact, in 2018, the interest rate was raised four times, and the federal fund interest rate was raised to 2.5%. From the perspective of rhythm, the expected allocation of interest rate increase can be considered before and after the interest rate meeting in February next year. Referring to the last round of interest rate increase cycle, the wording of the meeting before the formal interest rate increase of the Federal Reserve will go through three stages: “considering and discussing interest rate increase”, “announcing interest rate increase conditions” and “formal interest rate increase”, It is expected that the wording of “considering discussing interest rate hikes” will be announced at the meeting of the month or the previous meeting when the bond purchase ends next year.
Combined with the current reality, the Fed’s interest rate hike and even taper will face many obstacles, including the risk impact of tight liquidity on financial markets and corporate bonds, as well as Biden’s demand to ensure the support rate of the Democratic Party in the mid-term election. Even in the practice of American new fiscal doctrine, a relatively loose monetary environment is needed to provide space for long-term fiscal expansion, Therefore, we believe that the actual interest rate will be increased only once in 2022.
From the perspective of the impact of interest rate hike, first of all, we select the important speeches of Fed officials, And the fact of interest rate increase as the pricing anchor to analyze the impact of interest rate increase expectation: in the game stage of interest rate increase expectation (first interest rate increase – interest rate increase landing), the strength of interest rate increase 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 monthly rise and fall performance), US stocks fluctuated, and US bond interest rates did not show an obvious upward trend. After the fact of interest rate increase, US bond interest rates rose, the US dollar index peaked and fell, emerging market stock indexes and bulk commodities stabilized and rebounded, and gold did not adjust significantly.
Secondly, we introduce the implied policy interest rate of US federal interest rate futures as the expectation of interest rate increase for further analysis. From the correlation between the above interest rate increase expectation and asset price, the positive correlation between US bond interest rate, crude oil and interest rate increase expectation is high; There is a weak negative correlation between the US dollar index and gold in the expectation of raising interest rates; There is a weak positive correlation between stock index, commodity, emerging market stock index and interest rate increase expectation. It is consistent with the previous analysis conclusion.
