Core view
The situation in Russia and Ukraine is anxious, and major global assets fluctuate violently: in the past two weeks, the trend of global asset prices has been very different. Since the war between Russia and Ukraine, affected by risk aversion, stock assets have decreased greatly, and the indexes of gold and US dollar have risen sharply. As of March 7, the interest rate of us 10-year Treasury bonds has decreased by 10bp. Commodity prices rose significantly, with LME nickel up 85% and Brent crude oil up 29.7%. Russia is an exporter of oil, natural gas and some rare metals, and the western trade sanctions against Russia have strengthened the expectation of increasing the supply gap of energy and raw materials.
What signal does the tightening of US dollar liquidity release? The 3-month FRA / OIS spread has risen sharply since the war between Russia and Ukraine. The widening of FRA / OIS interest rate spread shows that the market is expected to increase the short-term financing cost of the US dollar. This reflects the tight liquidity of the US dollar. We believe that the tightening of US dollar liquidity is mainly due to the following reasons: first, the soaring prices of energy and other bulk commodities have led to an increase in market expectations for the downward fundamentals of the global economy, the rise of risk aversion and the rise of the US dollar index; On the other hand, in the context of high inflation, the market expects the fed to further tighten liquidity. Therefore, the market prefers US dollar assets and sells off non US dollar assets, further aggravating the rise of US dollar and the contraction of US dollar liquidity.
How to interpret the situation between Russia and Ukraine? The trend of the situation in Russia and Ukraine is a key factor determining market expectations. In response to the sanctions imposed on Russia by European and American countries, Russia has also recently planned a series of countermeasures. The situation is in danger of evolving from a regional political crisis to a global political and economic crisis. At present, the third round of Russia Ukraine negotiations has been carried out, but no substantive results have been reached. The situation in Russia and Ukraine has not yet shown a clear direction and needs continuous attention.
How is the Fed tightening going? Another key point affecting market sentiment is the Fed's interest rate hike. We explore the Fed's action of raising interest rates from four dimensions: the speech of the chairman of the Federal Reserve, the futures price of the federal funds rate, the state of American employment and the term spread. Powell's neutral speech reflected the flexible progress of raising interest rates; At present, the interest rate increase range (150bp) reflected by the US federal interest rate futures is lower than the most likely interest rate increase range (175bp) before the Russian Ukrainian conflict; The narrowing of term interest rate spread limits the space for the fed to raise interest rates during the year to a certain extent; The continued improvement of the labor market may be the support of the hawks of the Federal Reserve to raise interest rates. On the whole, under the uncertainty of the external environment, the Fed will carefully start the process of raising interest rates and adjust the tightening policy with reference to the follow-up trend and economic data of Russia and Ukraine.
Risk tip: the impact of the outbreak of overseas epidemic on the economy is higher than expected, global commodity prices rise again, and extreme climate has an impact on the global supply chain.
