Introduction to the report / core points
The relief of upward pressure on wages and the decline in second-hand car prices will gradually alleviate the upward pressure on core CPI in the United States; The price rise pressure of the two major sub items of energy and food outside the core CPI is highly related to the supply uncertainty under the Russian Ukrainian crisis. The overall easing of the crisis in the future will alleviate the price rise pressure; After the Fed enters the interest rate hike cycle, the decline of the demand side will also further ease the inflationary pressure. On the whole, the year-on-year growth rate of CPI in the United States is expected to enter the peak stage of this round of upward inflation growth in March and April: from the current situation, the probability of CPI peaking in March is too high; If the Russian Ukrainian crisis repeats more frequently than expected, the peak may be moved to April, but the overall year-on-year growth rate will not deviate significantly from the level of 8.5% this month. It will gradually fall back and complete the peak building from May, and inflation expectations are expected to fall simultaneously. With inflation expectations peaking and tightening expectations landing, we maintained the judgment that the US bond yield peaked at about 3% in May.
The upward pressure on core CPI weakened month on month, mainly benefiting from the easing of upward pressure on wages and the decline of second-hand car prices. In March, CPI inflation in the United States increased by 8.5% year-on-year and 1.2% month on month, which was basically in line with market expectations. In terms of structure, the year-on-year growth rate of core CPI was 6.4%, the same as that of the previous month; The month on month growth rate was 0.3%. After entering 2022, the month on month growth rate fell for two consecutive months, indicating that the broad-spectrum inflation pressure in the United States gradually fell. At present, the core inflation pressure mainly comes from energy and food prices. We believe that the decline of broad-spectrum inflationary pressure in the United States is mainly due to two factors: first, the pressure of wage inflation spiral is gradually alleviated. As early as 2022, we pointed out prospectively that the core problem of the U.S. job market lies in supply rather than demand. With the gradual normalization of the epidemic, labor supply will gradually repair and alleviate the upward pressure on wages. The change of non farm data since 2022 shows that our view is being gradually verified: the labor force participation rate in the United States has risen for three consecutive months since 2022, repaired from 61.9% at the end of 2021 to 62.4%, and residents' employment intention has increased significantly; After the repair of employment supply, the pressure of wage rise was significantly relieved. From the average hourly wage month on month growth (moving the average in March) to 2022, it fell back for three consecutive months, from 0.49% at the end of 2022 to 0.37%. Looking ahead, we believe that there is still room for further repair of employment supply, the risk of wage inflation spiral will be gradually eliminated, and the broad-spectrum inflationary pressure will be gradually relieved in the future. Second, the price of second-hand cars tends to fall after the pressure of core shortage is gradually relieved. Affected by the pressure of core shortage, second-hand cars are one of the items that contribute the most to the upward inflation pressure in the United States. The year-on-year growth rate of the item in March reached 35.3% (higher than the year-on-year growth rate of 32.0% of the energy item); At present, core chip manufacturers generally expect that the pressure of core shortage will be gradually relieved in 2022, and the price of used cars has also gradually dropped since the beginning of 2022. In January, the Manheim used car price index was 236.3, and then fell to 223.5 for two consecutive months in February and March.
The price increase pressure of the two sub items of energy and food is related to the Russian Ukrainian crisis, and the easing of the crisis will alleviate the price increase pressure. As mentioned above, the current inflation pressure in the United States mainly comes from the two "non core items" of energy and food, and the price increase pressure of the two sub items is highly related to the Russian Ukrainian crisis (please refer to the previous report "what is the impact of the escalation of conflict between Russia and Ukraine on inflation?". The core driving item for the rise of US inflation this month is still the energy sub item, with a month on month growth rate of 11% in March, which is the second highest in US history. It is mainly affected by the increase in supply uncertainty caused by the Russian Ukrainian crisis and the sharp rise in oil prices. For the food sub item, the month on month growth rate was 1.0%, which was the same as that of the previous month, but it was still at a high level. The future trend was also affected by the Russian Ukrainian crisis. The world agricultural supply and demand assessment report released by the U.S. Department of agriculture significantly lowered the annual grain export expectation of Ukraine, and the annual grain export expectation was reduced to 23 million tons from 27.5 million tons in March; Corn export is expected to be lowered from 20 million tons to 19 million tons.
Looking ahead, we believe that the Russian Ukrainian crisis may still recur in the short term, but it is expected that the overall direction will ease, and the impact of supply uncertainty on oil and food prices will gradually decline. In addition, crude oil supply is still expected to increase further, mainly due to the potential progress of the Iran nuclear agreement; According to Bloomberg's estimation, the idle capacity of Iranian crude oil in February 2022 exceeded 3.8 million barrels / day, which is basically consistent with the idle capacity of OPEC; In addition, the planned speed of the current round of oil reserve selling in the United States has reached 1 million barrels / day, which is equivalent to the increase in OPEC for more than two months. The gradual increase in supply side will effectively alleviate the upward pressure on crude oil prices. We still maintain our early judgment on oil prices. The oil price centers of Q2, Q3 and Q4 are 95, 80 and 80 respectively, showing a downward trend quarter by quarter.
It is expected that US inflation will enter the peak stage in March and April, inflation expectations and US bond yields will gradually peak in May, and the easing of upward pressure on wages combined with the decline of second-hand car prices will gradually ease the upward pressure on us core CPI month on month; The price rise pressure of the two major sub items of energy and food outside the core CPI is highly related to the supply uncertainty under the Russian Ukrainian crisis. The overall easing of the crisis in the future will alleviate the price rise pressure; After the Fed enters the interest rate hike cycle, the decline of the demand side will also further ease the inflationary pressure. On the whole, the year-on-year growth rate of CPI in the United States is expected to enter the peak stage of this round of upward inflation growth in March and April: from the current situation, the probability of CPI peaking in March is too high; If the Russian Ukrainian crisis repeats more frequently than expected, the peak may be moved to April, but the overall year-on-year growth rate will not deviate significantly from the level of 8.5% this month. It will gradually fall back and complete the top building from May. The peak of real inflation growth combined with the Fed's gradually enhanced tightening expectations will drive inflation expectations to gradually peak and fall in May.
Based on the latest inflation data, we maintain the judgment that the current round of upward US bond yields will peak in May. First, there is still uncertainty in the short-term CPI, which has not clearly peaked, and there may still be room for inflation expectations to rise slightly. There is still room for the fed to reduce its investment in the first time, but not in the second time. In the next year, the maturity scale of treasury bonds held by the Federal Reserve will exceed US $120 billion (of which US $493.6 billion will expire within three months and US $738.1 billion will expire within 3-12 months). The upper limit of the average monthly reduction scale of corresponding Treasury bonds is about US $100 billion, which is greater than the current index of US $60 billion. It can be seen that the Federal Reserve has not reduced the table according to the theoretical upper limit for the time being. On the other hand, it is not ruled out that the number of 50bp interest rate hikes during the year is still expected to increase. It is expected that after the interest rate meeting in May, with inflation peaking and tightening expectations, the yield of US bonds will peak, and the peak in the year is expected to be around 3% (for details, please refer to the previous report "how to look at the yield of US bonds after the intensity of contraction is clear").
The US dollar will remain high in the short term driven by austerity expectations. The US bond yield is expected to peak near 3% in May. In the US dollar, driven by austerity sentiment in the short term, the US dollar is expected to remain high and may continue to fluctuate around 100.
In the second half of the year, the interest rate hike was not as strong as expected and the downward pressure on the US economy resonated (the European replenishment will also lag behind the start of the US). The US dollar index is expected to return to the downward channel and return below 95.
In terms of US bonds, as mentioned above, the current round of US bond yield rises. We expect the high point to be near 3.0% and the peak time to be near May. In Q2, the 10-year and 2-year term interest margin may be reversed repeatedly.
In terms of U.S. stocks, asset prices will gradually desensitize after the normalization of confrontation between the United States and Russia in the future, and the asset price correction due to the impact of risk appetite will be gradually repaired. In the short term, US stocks still need to return to the main line and pay attention to the impact of the expectation of future interest rate hikes and the downward resonance of corporate profits on US stocks. There is limited space for Q2 sharp correction, but it is difficult to make outstanding performance, and there is a high probability of maintaining the shock trend; After the interest rate increase expectation in the second half of the year was gradually falsified, the economic downturn expectation was superimposed to focus on the rebound opportunities of growth stocks.
In terms of gold, in the short term, the price of gold also rose sharply, which is in line with our early judgment; After the conflict is gradually normalized, it is expected to pull back from the current high level. However, we are still optimistic about gold throughout the year, especially the decline of the second half of the US dollar will drive the gold price higher. Throughout the year, we believe that the London gold price will exceed US $2000.
Risk warning: the epidemic situation exceeded expectations, resulting in the extension of the easing cycle; Inflation exceeded expectations, leading to rapid tightening by the Federal Reserve; There is an error in the measurement method of the high point of US bond yield.
