Introduction
The first four months of 2022 are about to pass, despite the changes of the global epidemic, the sudden rise of the situation in Russia and Ukraine and the ups and downs of the financial market. Under the background of the global interest rate pegging and the U.S. interest rate inversion, there will be significant changes in the global interest rate pegging and the U.S. asset inversion. Based on the historical experience of double upside down, this paper analyzes the current signals and guidelines of double upside down, and puts forward suggestions on the allocation of major global assets in the future.
The Fed's tightening is unstoppable, and the global recession is coming?
With the high inflation expectations superimposed on the opening of the Fed's tightening cycle, the long-term and short-term interest rates of US bonds have risen. However, in the past two months, the intensity of the Fed's release of tightening expectations is significantly faster than the climbing speed of inflation expectations, resulting in the upward slope of short-term interest rates being greater than that of the long-term, thus creating conditions for the inversion of interest rates. As the "phantom" of the recession with the upside down of 2y-10y US bond interest rate has a high success rate in predicting the US economic recession, but it also lacks rigorous causal logic, the short upside down in early April 2022 may be a warning of the US economic recession in the next six months to one and a half years, but it does not mean that the recession is inevitable, and it is impossible to predict the time and depth of the recession. It is also necessary to observe and track the specific operation state and direction of the US economy. In addition, we also looked back on the past six times of upside down of US bond interest rates and the performance of major global assets in various terms after that.
Monetary policy is loose inside and tight outside, superimposed with boom differences, and the 2Y and 10Y interest rates of China and the United States are upside down
The upside down of interest rate difference between China and the United States is different from the temporary upside down of 2y-10y interest rate of US bonds. The upside down of interest rate difference between China and the United States has been maintained since it appeared. The two-year interest rate inversion between China and the United States has continued since March 28, and the 10-year interest rate inversion between China and the United States has continued since April 11. The root cause is the difference in prosperity between the two major economies of China and the United States and the result of loose monetary policy and tight monetary policy caused by the differentiation of inflation. In addition, we also backtracked and compared the four times of interest rate inversion between China and the United States and the performance of major global assets in each period after that.
Comparison of two double upside down interest rates and Prospect of this round of asset allocation
In history, there have been two times of double upside down of interest rates, both of which are the upside down of interest rates of Chinese and American bonds, and the upside down of interest rates of 2y-10y American bonds; In addition, when the interest rate of 2y-10y US bonds was upside down, the interest rate upside down of Chinese and US bonds had appeared for several months. In this round of double upside down, the upside down of interest rates between China and the United States and the upside down of interest rates of US bonds are basically synchronized. In addition, it is also facing the new pattern of short-term disorder and long-term reconstruction of the global supply chain, as well as the new background of the game between major countries in many fields such as global economy, finance, geography, science and technology, environmental protection and so on.
In this regard, we put forward the global asset allocation strategy for a period of time in the future - overseas, stocks and bonds maintain a relative balance, the overall top of commodities is coming, and the interest rate meeting in May is the key node; In China, short-term debt is better than stocks, medium and long-term stocks are better than bonds, and the internal differentiation of commodities is intensified; In terms of exchange rate, the upward space of the US dollar is limited, and the RMB exchange rate will stabilize after a short-term rapid depreciation.
Risk tips:
1) covid-19 epidemic further increased and impacted the global economy; 2) Supply side factors continue to push up inflation, resulting in continued acceleration of monetary tightening; 3) The rising geopolitical situation has accelerated international capital flows, resulting in increased volatility in the financial market.
