Powell seems to have done meritorious service again!
Overnight, the US stock market was another crazy pull. The Dow rose 2.81%, the S & P 500 index rose 2.99% and the NASDAQ rose 3.19%. The Dow and the S & P 500 saw their biggest one-day gains in two years.
the Federal Reserve announced that it would raise its benchmark interest rate by 50 basis points and would begin to reduce its balance sheet in June. This is the Fed’s biggest interest rate hike since 2000, but it is also within the general expectation of investors. Fed chairman Powell said the central bank would not consider raising interest rates more actively at future meetings. This expectation management directly aroused the appetite of investors, and US stocks soared accordingly
The expected management of the Federal Reserve may also have a positive stimulus to the global capital markets, as the US dollar index also plunged by nearly 1% last night, which means that the tight liquidity of offshore US dollars may be relieved, and emerging market currencies may have a chance to breathe. For the trend of emerging markets such as China, the analysis framework will inevitably focus on covid-19 and the conflict between Russia and Ukraine.
So, how will A-Shares be interpreted?
American madness
On Wednesday (May 4), the three major stock indexes in the United States closed up sharply. The Dow rose 2.81%, the S & P 500 index rose 2.99% and the NASDAQ rose 3.19%. Caterpillar, 3M and apple rose more than 4%, leading the Dow.
Wande’s Tamama technology index rose 3.58%, Facebook rose more than 5%, Google rose more than 4% and Tesla rose 4.8%. Chip stocks rose sharply, amd rose more than 9%.
Peripheral commodities rose across the board, international oil prices soared by 5%, and international gold prices also soared in late trading.
The dollar index, which has a profound impact on the global capital market, fell sharply, and the yield of US bonds also began to decline.
The interest rate hike and rebound dragged the NASDAQ index into the bear market area after the cruel April of the stock market. The S & P 500 index was more than 13% below its all-time high on Wednesday. Earlier this week, both indexes hit their lowest levels this year.
Investors seem to be betting on the Fed’s confidence in the US economy. Stocks regarded as economic leaders also performed well, with home depot and caterpillar up 3.4% and 4.2% respectively. Banking stocks also rose, with Citigroup up 4.3% and JPMorgan Chase up 3.3%.
Before the Fed meeting, some Wall Street strategists also said that although the market may rebound after raising interest rates for the first time in March (the S & P 500 index rose more than 6% in the next few weeks), the market fell back again in April.
what did Powell do? What did you say
It can be said that Powell contributed to the strong rebound of US stocks this time. So, what did he do? What did you say?
The Federal Open Market Committee (FOMC) announced the latest interest rate resolution on Wednesday local time, raising the benchmark interest rate by 50 basis points to the range of 0.75% – 1.00%, the largest interest rate increase since May 2000, but basically in line with market expectations.
The Federal Reserve said in a statement that the Federal Reserve will begin to shrink its table at a pace of $47.5 billion per month on June 1, that is, to reduce US $30 billion of US Treasury bonds and US $17.5 billion of mortgage-backed securities (MBS) per month, and gradually increase the upper limit of shrinking table to US $95 billion per month within three months, that is, to reduce US $60 billion of US Treasury bonds and US $35 billion of mortgage-backed securities per month.
but these are not the most important. There are three very important signals for the Federal Reserve to discuss interest rates this time:
First, Powell said that some evidence showed that the core PCE reached a peak. If we look at our expectations, at the next two meetings, raising interest rates by 50 basis points (respectively) is an option, and may raise interest rates by 25 basis points after raising interest rates by 50 basis points. He directly ruled out the possibility of raising interest rates by 75 basis points, saying that the 75 basis point interest rate increase was not worth considering;
Second, Brad, the Fed’s super hawk, did not vote for a larger interest rate increase;
Third, the Fed did not raise the reduction of treasury bonds to the ceiling of $60 billion in the refinancing month. It was originally thought that the Federal Reserve would reach the $60 billion national debt reduction ceiling in August to allow the Treasury Department to reinvest some of it in the refinancing month.
These signals exceeding market expectations may be the main reason for the sharp rise in risky assets. Because although the Fed’s decisions themselves are hawkish, they are obviously moderate compared with the high expectations of the market.
how to interpret A-Shares
For the A-share market, in fact, the main pressure comes from two directions: one is the US dollar and the other is the epidemic. There are many logic behind the rise of the dollar, including the war in Ukraine. From the current situation, the conflict between Russia and Ukraine is still deepening.
According to the latest news, the military commander of the speed steel plant in mariu Polya, Ukraine, said that a “difficult bloody battle” was taking place, and the Russian army broke into the factory on Tuesday. On May 4, chinanews.com quoted CNN as saying that on the 4th local time, mayor boychenko of Mariupol, Ukraine, said that there was an exchange of fire at the Yasu steel plant on the 4th. City officials have “lost contact” with Ukrainian military personnel in the steel plant and cannot know “what happened”.
On May 4, the office of the president of Ukraine said that Ukrainian President zelenski called the United Nations Secretary General gutrestone on the same day to thank the United Nations Secretary General for his efforts in evacuating Ukrainian citizens from the Yasu steel plant. Zelenski also called on Guterres to continue to assist in evacuating all the wounded from the Yasu steel plant. Ukrainian state news agency quoted Danilov, Secretary of the Ukrainian national security and Defense Commission, as saying on the 4th that the Ukrainian Russian conflict will not end in the short term, and its duration depends on many factors.
. The State Department statement said that Antony Blinken had not contacted us president Biden in the past few days, and Biden was not regarded as a close contact object according to the guidelines of the US Centers for Disease Control and prevention
Tianfeng Securities Co.Ltd(601162) believes that the decline in the A-share market before mid March is mainly due to three factors: first, the downward pressure on China’s economy and the slow recovery of real estate expectations; Second, the Fed’s interest rate hike is much higher than expected, and the US dollar liquidity contraction is expected to be faster; Third, the black swan of the Russian Ukrainian war. After mid March, the epidemic had a great impact.
at present, the main marginal improvement is the epidemic itself and the resumption of work and production. Then, a reasonable expectation is that this marginal change may make the index rebound to the platform in mid March. Since then, whether the market can further rise may have to return to the factors that led to the market decline before March
According to the framework of Tianfeng Securities Co.Ltd(601162) , the second factor mentioned above may also be weakened. If the US dollar index peaked and corrected, it means that there is only one risk factor left in the whole market, “Russia Ukraine conflict”. The impact of the market on this factor has been almost digested, and now the ruble has risen back to its pre war level. Therefore, as long as no worse events occur, the most difficult time of the A-share market may have passed.
