Liquidity and valuation insight issue 13: the Fed’s ticketing Committee collectively turned eagle, and the market risk appetite gradually picked up

Global macro liquidity

The Federal Reserve will start the contraction as soon as may. At the FOMC meeting of the Federal Reserve on March 17, Powell said that the reduction of the table would begin as soon as may. The basic framework is similar to the last reduction cycle, but the pace will be faster. The form reduction method mainly relies on passive redemption to reduce the scale of the balance sheet. In the future, small-scale mortgage-backed loans (MBS) may be sold to supplement the advance payment. On March 24, Evans, a member of the Federal Reserve, expressed his support for starting a rapid reduction of the balance sheet, and did not rule out the possibility of reducing the balance sheet and raising interest rates at the same meeting. As of March 23, the total assets of the Federal Reserve had increased by about $51.8 billion compared with two weeks ago, including an increase of about $5.8 billion in treasury bonds.

Us prices continue to rise and interest rates will rise to a neutral level. The core PCE of the United States reached 6.4% year-on-year in February, the highest level in 40 years. In addition, medium – and long-term inflation expectations in the United States are also rising. At present, the 10-year and 5-year breakeven inflation rates in the United States have reached 2.86% and 3.41% respectively. After the implementation of the policy of raising interest rates for the first time, the inflation expectation of the United States has not been suppressed, but further increased. On March 22, Powell publicly stated that the Fed’s policy-making must focus on the progress of inflation. Many members of the Fed said that interest rates would be raised to a neutral level.

China’s macro liquidity

In terms of volume, the social finance increment in February was lower than expected, mainly due to the weak effective demand of the real economy. In February, the increment of social financing scale was 1.19 trillion yuan, a year-on-year decrease of 531.5 billion yuan. In February, the growth rate of social financing was 10.2%, down 0.3 percentage points month on month. The increment of social finance was less than expected. The reason may be that the epidemic continued to superimpose seasonal factors in February, resulting in weak demand for the real economy. The structure of credit data in February still needs to be optimized, and the performance of three non-standard and residential financing is poor. Structurally, residential loans continued to be weak in February, with a year-on-year increase in short-term loans and medium and long-term loans, mainly related to weak real estate sales. The three non-standard financing decreased significantly, and the new value added was – 505.3 billion yuan. Enterprises’ bond financing decreased significantly year-on-year in January, indicating that the medium and long-term financing demand of enterprises is weak. In February, government bond financing reached 272.2 billion yuan, an increase of 170.5 billion yuan year-on-year, and government bond financing continued to improve.

In terms of price, when the expectation of interest rate reduction failed, the interest rate of ten-year Treasury bonds fluctuated upward first and fell after March 23. After the central economic work conference in December last year, the policy was set to stabilize growth and start a new round of easing. The transmission from wide money to wide credit was clear, which made the ten bond interest rate fluctuate upward. As the central bank failed to raise interest rates on March 15, the yield of China’s 10-year Treasury bond rose to 2.83% on March 23, reaching the highest point at this stage, and then fell slightly. As of March 30, the yield of 10-year Treasury bond was 2.77%.

Stock market liquidity

From the perspective of capital demand, compared with the previous two weeks, the number of IPO companies has rebounded, the financing scale has decreased, and the net reduction scale of fixed growth market and industrial capital has fallen in the past two weeks. In March 2022, the pressure of lifting the ban on A-Shares rebounded slightly.

From the perspective of capital supply, the total issuance of equity funds in the past two weeks was about 7.18 billion yuan, down from the total issuance of 8.23 billion yuan in the previous two weeks. In March 2022, there were 53 equity funds waiting to be issued. According to the raising target, if all the funds are raised successfully, it is expected to bring about 184 billion yuan of incremental funds to the market. Recently, the scale of financing balance has remained stable, and the net subscription of ETF has changed from positive to negative. In the past two weeks, the northward capital continued to flow out of a shares, with a net outflow scale of about 29.5 billion yuan. In terms of industry allocation, the northward capital increased the position of power equipment, electronics and coal against the trend in the past two weeks, and reduced the position more. The industries are mostly concentrated in banking, communication and mechanical equipment. In the past two weeks, the net inflow of southward funds continued, with a cumulative inflow of about HK $28.9 billion, an increase of about HK $4.3 billion over the previous two weeks.

Risk appetite and valuation

In terms of risk appetite, China’s steady growth signal has been further released in the past two weeks, the market risk appetite has gradually rebounded, the equity risk premium has dropped, the market panic has eased, and the turnover rate of each index has dropped significantly, but the market trading sentiment is still poor. With the successive deregulation of local real estate policies and the gradual clarity of the recent situation in Russia and Ukraine, the proportion of A-share gainers has increased in the past two weeks, and the income of equity funds has warmed up, but it still underperformed most broad-based indexes. From a global perspective, geopolitical risks have been mitigated recently, international crude oil prices have fallen, overseas market sentiment has warmed up, and the volatility of S & P 500 has continued to fall sharply. The prices of safe haven assets showed differentiation. Under the influence of the Fed’s interest rate hike, the yen index depreciated sharply, and the price of gold remained rising. In terms of alternative assets, Russia recently announced that it would consider accepting bitcoin as a payment method for its oil and gas exports, which boosted the sharp rise in bitcoin prices.

In terms of valuation, the risk appetite of the global capital market has rebounded in the past two weeks. With the release of the delisting storm of China concept shares and the further release of China’s stable growth policy signal, the valuation of Hong Kong stock market and major A-share stock indexes led the recovery. At the index level, the valuation of the CSI 500 index has fallen to an all-time low. At the industry level, the valuation of real estate, coal, agriculture, forestry, animal husbandry and fishery and other industries have led the rise in the past two weeks, and the valuation of the financial sector is still at the bottom of history.

Liquidity risk exceeding expectations; Economic development is less than expected; Sino US friction eased; The epidemic situation worsened more than expected.

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