Event: after delta, South Africa reported another covid-19 virus B.1 for the first time recently 1.529 mutant, causing global concern. South Africa first reported the mutant strain to who on November 24, and on November 26, 2021, The World Health Organization (who) defines it as the fifth "concern variant", named Omicron variant. The recent epidemic situation in South Africa has deteriorated significantly, and Omicron has become the dominant variant in South Africa by the end of November (nearly 80% in the sequencing sequence). On November 29, the who said that the overall risk assessment of Omicron variant of covid-19 virus in the world is "very high" , it may spread widely in the world. As of December 1, at least 20 countries or regions have reported confirmed cases related to Omicron, and the import of the mutant has been monitored in South Africa, the United States, Israel, Belgium, Italy, the United Kingdom, Spain, Austria, Brazil, Japan and Hong Kong, China. The attack of "Omicron" triggered panic in the global financial market, and asset prices fluctuated violently. Among them, crude oil and U.S. stocks fell sharply, and U.S. debt rose sharply, showing obvious risk-off characteristics. At present, the market is highly concerned about the extent to which Omicron will exacerbate the global epidemic and what impact it will have on the global economy, policies (mainly the monetary policy of the Federal Reserve) and financial markets.
In this regard, Dongfang Jincheng believes that:
At present, the data and systematic research of "Omicron" virus strain around the world are relatively limited. The previous sharp fluctuations in the market more reflect panic pricing. In the future, in the short term, we need to focus on the severe rate and mortality of "Omicron", as well as the protection efficiency of the vaccine. We estimate that the impact of this round of Omicron epidemic may be similar to that of delta epidemic, which is expected to disturb the global economic recovery, but it will not fundamentally change the direction of recovery.
Due to the short epidemic time of Omicron mutant, there is no systematic research data on its transmissibility, pathogenicity and immune escape ability. As far as the current research is concerned, the risk of "Omicron" is mainly that it has more mutations than the previous covid-19 mutants 1, resulting in its infectivity and drug resistance may be stronger than other strains. According to the preliminary case data, Omikron may be more infectious than Delta, but the symptoms of the confirmed cases are not serious. 2. The hospitalization rate The severe disease rate is not high (Figure 1). In terms of the protective efficacy of the existing vaccine, Moderna expects that the effect of the existing vaccine in dealing with Omicron will be far less than that in dealing with the early covid-19 strain, which is also a major reason for the market panic. However, according to media reports, senior health officials and experts in the United States said that even if the protection of the vaccine is weakened compared with other variants, the vaccine is not effective "The possibility that the vaccine will not work on the new variant is very small." According to the statistics of our worldin data, at present, the global vaccine penetration rate and vaccine coverage rate have exceeded 50%. Therefore, we speculate that the impact of this round of Omicron epidemic may be similar to that of delta epidemic, that is, although it causes a wide range of infection, the severe rate and mortality will not rise significantly.
In the case of insufficient case data and research evidence, the previous severe shocks in the capital market were more panic pricing caused by Omicron's uncertainty, which was manifested as positive hedging assets and negative risk assets. In the future, we need to focus on the data of transmission and pathogenicity (especially severe rate and mortality) of Omicron strain in the short term. If it is confirmed that "Omicron" will not increase the severe rate and mortality, it indicates that it will not form a qualitative disturbance to the overall trend of global economic recovery, and the sharp fluctuation of the market may only be a short-term phenomenon.
Considering that the continuous emergence of mutant strains and the intermittent rebound of the global epidemic have become the normalization trend, it is expected that the epidemic will continue to impact the market from the aspects of supply, demand and sentiment. At the same time, the increasing uncertainty of monetary policy will also lead to the continuous correction of market expectations and market fluctuations.
However, after the outbreak of this round of epidemic, many countries have significantly strengthened measures such as international personnel flow control and border blockade. Japan has even rarely announced "closure". These measures will undoubtedly slow down and drag down the repair process of the global economy: the pressure of supply bottlenecks such as industrial chain and transportation will continue or even intensify, At the same time, labor shortage The improvement (especially in developed economies) will also be blocked. In addition to the drag on economic growth, repeated outbreaks also lead to further intensification of inflationary pressure, which will affect the process of monetary policy shift of central banks. Considering the continuous emergence of mutant strains and the intermittent rebound of the global epidemic has become a normal state, the epidemic will still be in terms of supply, demand and sentiment The continuous impact on the market and the intensification of the uncertainty of monetary policy may also lead to the continuous correction of market expectations, and then aggravate the market volatility.
At present, the Federal Reserve's monetary policy has not included the influencing factors of Omicron, but in the face of the uncertainty caused by the repeated epidemic, the future tightening process of the Federal Reserve's monetary policy will be "contingent": even accelerating the pace of reducing bond purchase does not mean that interest rates will be increased early or frequently next year.
At the Senate hearing held on November 30 local time, Powell said that at present, the Federal Reserve's monetary policy has not included the influencing factors of Omicron, will give up the expression of "temporary inflation", and mentioned for the first time that it will discuss accelerating the reduction of asset purchases at the monetary policy meeting in December. However, at present, the market believes that giving up "temporary inflation" means that the Fed's monetary policy has turned to sharp tightening, which may be a policy misreading. We believe that "releasing the accelerator" is not equal to "stepping on the brake". Powell gave up the expression of "temporary inflation", so as to express that his perspective on inflation risk has changed substantially and convey the message that it may accelerate taper. On the one hand, Powell suppressed market inflation expectations by making a gesture of monetary policy normalization to avoid a vicious circle of self realization caused by too high inflation expectation; On the other hand, if the Fed really ends QE ahead of time, it will also strive for a larger policy observation window for it to start raising interest rates to some extent. After all, compared with raising interest rates, accelerating taper can also suppress inflation expectations. At the same time, the impact on market liquidity is more controllable and the resistance to economic recovery is less. At a time when the Fed is facing a policy dilemma - both easing to support the economy and tightening to control inflation, this undoubtedly becomes the best policy choice after weighing.
This also means that in the short term, under the background of repeated outbreaks, the future monetary policy tightening prospect of the Federal Reserve has low visibility, and the policy tightening process will be "contingent": even accelerating debt reduction does not mean that interest rates will be increased earlier or more frequently next year. We note that after announcing the reduction of QE in early November, the Federal Reserve increased its holdings of US $45.8 billion of treasury bonds and US $81.8 billion of MBS for three consecutive weeks, totalling US $127.6 billion. If the fourth week's data are added, the scale of bond purchase will even exceed the previous US $120 billion per month. This shows that although Powell sent a signal to speed up the debt reduction, from the practical point of view, the Fed did not show the intention to quickly withdraw its easing support. At present, the first case of Omicron infection has occurred in the United States, and the risk of this round of epidemic spread should not be underestimated. Powell and U.S. Treasury Secretary Yellen said at a congressional hearing on November 30 local time that "they are worried that Omicron will derail the economic recovery". Referring to the drag of the delta epidemic on the U.S. job market and economic recovery and the policy response made by the Federal Reserve at that time, we believe that under the background of unknown impact of the Omicron epidemic and repeated risk of the epidemic, it is not appropriate to make too radical judgment on the timing and frequency of the Federal Reserve's interest rate increase, or even rule out the scenario of serious impact of the epidemic in the future, The Fed may delay raising interest rates. Overall, the future epidemic situation is changeable, the visibility of the Fed's monetary policy outlook is low, and the policy tightening process will be contingent.
Even if the Fed accelerates taper, the spillover effect on China's financial market will be relatively limited.
First of all, the Central Bank of China has started the process of monetary policy normalization since the second half of 2020, which is obviously earlier than that of the Federal Reserve. Moreover, the Central Bank of China has made forward-looking arrangements for the "water collection" of the Fed's monetary policy at present and in the future. Therefore, no matter how the rhythm of the Fed's monetary policy changes, the impact on China's financial market will be controllable. Especially for the A-share market, since the Central Bank of China did not release water during the epidemic, and the rise of the stock market was small, the adjustment pressure on the A-share market caused by policy tightening will be relatively limited compared with the U.S. stocks greatly boosted by the release of water by the Federal Reserve.
Secondly, the RMB exchange rate remained strong in the second half of this year. The core reason is the continuous high growth of China's export amount and the growth of trade surplus. Considering that the global epidemic continues repeatedly, especially the Omicron mutant may delay the recovery time of the global industrial chain supply chain, China's exports are expected to remain strong in the short term. Therefore, even if the Federal Reserve accelerates taper, it will not put significant depreciation pressure on the RMB exchange rate.
Finally, considering that the Fed's monetary policy adjustment has little impact on China, China's monetary policy will still be "dominated by me" in 2022. We judge that there will be some downward pressure on China's economy next year, and it is the general direction for monetary policy to be moderately broad. In the future, against the background of the dislocation of monetary policies between China and the United States, the regulators will adhere to the policy tone of flexibility, accuracy, rationality and moderation, adhere to the bottom line of not flooding, and control the fluctuation of RMB exchange rate within a reasonable range by strengthening the macro Prudential Management of cross-border capital flows, so as to create a favorable monetary and financial environment for China's stable growth and risk prevention.
