Ping An View:
Since 2022, the geopolitical conflict in the European continent has triggered global risk aversion, and the international economy and financial markets have changed suddenly. Based on the previous research, this report summarizes the ten new changes in the international economy and market.
I. The US and European economies have made a "good start". The US and European economies quickly got rid of the impact of the epidemic, and the unsealing of the US and European economies accelerated. The economic data since the beginning of 2022 show that the fundamentals of the U.S. economy are running well, and the resilience to the impact of Omicron is higher than expected. The latest New York Fed Wei index shows that the real GDP of the United States in the first quarter of this year may reach more than 5% year-on-year, higher than the 4% annual economic growth predicted by the IMF.
2. The risk of global inflation is rising again. The recent global inflationary pressure mainly comes from three aspects: energy prices, food prices and international freight rates. The US inflation situation is still grim, and inflation expectations rebounded. On March 7, the US five-year tips implied inflation expectation rose to 3.29%, another record high.
III. The Prospect of the US economy is "covered with dust". First, the inhibitory effect of US inflation on economic growth is magnified. Secondly, the growth trend of service consumption in the United States is less than expected, and the growth space is insufficient. The savings rate of US residents has rapidly dropped to 6.4%, lower than the level before the epidemic. Finally, the pace of fiscal tightening in the United States is fast, and the resistance to medium - and long-term fiscal plans is increasing. At present, the US economy is suspected of "overheating", the sustainability of US government debt is more questioned, and the geopolitical situation may distract Biden from promoting the financial plan.
IV. The European economy is more vulnerable. The EU is highly dependent on Russian commodity imports, and the trade between Europe and Russia is significantly closer than that between the United States and Russia. In particular, the euro zone is highly dependent on Russian imports of energy, including 40% of natural gas and 27% of oil imports. If the geopolitical conflict escalates, the originally narrow fiscal space of the eurozone will be more squeezed. Euro asset allocation needs to be more cautious.
Fifth, the Fed is more difficult to "soft landing". After the geopolitical conflict, the financial market is more volatile, the term interest spread of US bonds narrowed faster, and the Federal Reserve should not raise interest rates aggressively in the short term. In March, it may only raise interest rates by 25bp. However, the US medium-term inflationary pressure is rising, and the Fed may need to take more active actions to curb inflation, possibly raising interest rates by 50bp at a time. However, if the US economy tightens due to interest rate hikes, the Fed may need to suspend the interest rate hike process.
Vi. the risk of fluctuations in US stocks has increased. Since this year, as of March 8, the S & P 500 index of US stocks has fallen by 12.5% and the VIX Index of US stocks has risen. However, after this round of adjustment, the current valuation level of US stocks is more reasonable. As of the week of March 4, the price earnings ratio (TTM) of the S & P 500 was 45% of the historical quantile of nearly a decade; The level of risk premium is close to 3%, which is 72% of the historical quantile in recent ten years. The excess Cape yield was still as high as 2.9% in February. The depth adjustment signal of US stocks is not clear.
7. The term interest spread of US bonds narrowed. As of March 8, the 10-year US bond interest rate fell to 1.86%, the real interest rate fell sharply to - 1.04%, and the 10-year and 2-year US bond term spread narrowed to 23bp. The 10-year US bond interest rate is under pressure due to the demand for risk aversion and the "dust" of the US medium-term economic outlook. Looking back, we need to pay attention to the "upside down" risk of 10-year and 2-year US bond maturity spreads. In addition, it may be difficult for the fed to significantly increase the supply of treasury bonds in the Treasury market, and then the impact on the long-term interest rate of treasury bonds may be limited.
8. Oil prices rose sharply and continued to reach a new high. On March 7, Brent crude oil futures rose above US $130 / barrel. Looking back, it is expected that oil prices will be difficult to cool down for at least one quarter. First of all, geographical conflicts are highly complex and unpredictable, and it is difficult to say that market pricing has been sufficient. Secondly, the pattern of short supply of crude oil is difficult to reverse in the short term. It will take about four months for us oil companies to actually release production after increasing drilling rigs. There are still uncertainties about the outcome of the US Iran negotiations and whether Iran's crude oil exports can effectively replace Russia's exports. Iran's oil export has reached 2.5 million barrels per day since 1980, while Russia's oil export has been about 5 million barrels per day since 2005.
IX. strengthening the logic of gold strength. On March 8, the international gold price rose above US $2000 / ounce. At present, the logic of gold's strength continues to strengthen: 1) the risk aversion attribute is stimulated by geographical conflicts, global economic and inflation uncertainty. 2) Inflation Hedging property is highlighted when international oil prices rise and inflation expectations rise. 3) Gold has more allocation value than US bonds. Since this year, the real interest rate of 10-year US bonds has remained at a historical low of less than - 0.5%, and has accelerated its decline in the near future. 4) Gold has more allocation value than digital currency. Recently, the unit price of bitcoin has hovered around $40000, significantly lower than the historical high of $67000 in 2021.
X. more support for the US dollar. On March 7, the dollar index stood at the 99 mark. The US dollar index gained more support in the short term due to rising demand for risk aversion and the US economy being more resilient than Europe. Looking back, the US dollar index may remain high and volatile in the next 1-2 months. However, if the market fully takes into account the expectation of interest rate increase and the policy gradually produces tightening effect on the U.S. economy after the implementation of the policy, the dollar may bear the pressure of weakening. In addition, the hedging value of RMB in this round highlights or weakens the hedging value of US dollar to a certain extent. The market share of RMB in swift system has surpassed the traditional safe haven currency yen.
Risk tips:
1) the evolution of international geopolitical conflicts may exceed expectations, and then major macro assumptions or major changes may occur.
2) the trend of overseas inflation may exceed expectations, and the risk of overseas "stagflation" increases.
3) there are hidden dangers in the stability of overseas financial markets and risks in overseas financial asset investment.
4) the trend of crude oil market is uncertain, there are variables around the trend of economic sanctions against Russia, and the release of Iranian crude oil export and the increase of OPEC production may be triggered.
5) international geopolitical conflicts or rapid cooling, and then the prices of safe haven assets such as gold and US dollar may be adjusted.
6) the tightening of monetary policy of the Federal Reserve and other overseas central banks may exceed expectations, and the overseas economy and market may be greatly impacted.
