[strategic view]
The febwatch of the Chicago Mercantile Exchange (CME) is the core tool for predicting the number of fed interest rate hikes. At present, the core prediction range of fed interest rate hikes by the end of 2022 is between 2.5% - 3%, with a probability of 69.08%, which corresponds to the highest expectation of 11 cumulative interest rate hikes (25bp each time), and the ten-year yield of recent US bonds has soared to more than 2.75%.
From the binary probability tree, it can be concluded that in June 2022, the Federal Reserve has the highest probability of raising interest rates five times in total, and the benchmark interest rate has reached 1.25%; By September 2022, the federal interest rate will increase 8 times in total, with the highest probability, and the benchmark interest rate will reach 2%; By June 2023, the federal interest rate has increased 13 times in total, with the highest probability, and the interest rate has reached the level of 3.25%.
With the resurgence of high inflation in the United States (CPI rose 8.5% year-on-year in March 2022, a 41 year high), similar to the era of high interest rates brought by the Federal Reserve to combat high inflation in the early 1980s (the highest CPI reached 14.8% in 1980), it will emerge in the next 1-2 years. Looking back at the 1975 first oil crisis (oil rose over 300%), 1980 second oil crisis (oil increase over 200%), 1990 economic crisis, 2000 Internet share foam and 2008 sub loan crisis, the low level of PMI boom is basically consistent with the inflation high point. The imbalance between aggregate demand and total supply brought by inflation is the core cause of recession. Historically, the disturbance of oil price is the strongest factor affecting CPI inflation. The rise of global oil price in 2022 exacerbates this inflation expectation.
From the beginning of March 2022, the upside down of 10-3 interest rate spread of US bonds reappeared after 16 years, which actually reflects the sudden reduction of medium and short-term risk appetite. The expected factors for the contraction and recession of the US economy include the decline of industrial recovery, the general shrinkage of fiscal expenditure, the release of monetary release, the weakening of consumption effect, and the rise of interest rate and foam in the real estate market.
After a lapse of 12 years, the interest rate gap between China and the United States has been upside down again. The net outflow of northbound funds represented by foreign capital in March was 35 billion, reflecting the impact of upside down interest spread on the valuation of China's equity market In similar historical periods, growth stocks are the most severely damaged, and there may be a continuous outflow of foreign capital from equity assets denominated in RMB.
With the upside down of the interest rate difference between China and the United States, once China's foreign exchange reserves continue to fall into the negative growth range, the dynamic adjustment and depreciation of the RMB exchange rate may occur in the next two quarters (similar to the 811 foreign exchange reform in August 2015, but the range is less than that in the same period, and the RMB depreciation will reduce the outflow rate of foreign exchange reserves).
[risk tips]
Global geopolitical risks
Market liquidity risk
