Before the A-share market, there was a big positive, and the interest rate cut came!
On January 17, the operating interest rates of MLF and reverse repo both decreased by 10 basis points. Affected by this, the three major indexes of A-Shares and the three main varieties of treasury bond futures opened higher in the morning.
As of midday closing, the Shanghai index rose 0.59%, the Shenzhen Component Index rose 1.35% and the gem index rose 1.56%. In terms of treasury bond futures, 10-year, 5-year and 2-year main contracts rose by 0.07%, 0.12% and 0.06% respectively.
On January 17, the people’s Bank of China announced that in order to maintain the reasonable and abundant liquidity of the banking system, the people’s Bank of China will carry out RMB 700 billion medium-term lending facility (MLF) operation and RMB 100 billion open market reverse repurchase operation on January 17, 2022. The bid winning interest rate of medium-term lending facility (MLF) operation and open market reverse repurchase operation decreased by 10 basis points.
Source: People’s Bank of China
down for the first time in recent two years
It is worth noting that the last one-year MLF interest rate drop was on April 15, 2020, and the operating interest rate was reduced from 3.15% to 2.95%. The last time the open market 7-day reverse repo interest rate decreased was on March 30, 2020, and the operating interest rate decreased from 2.4% to 2.2%.
Source: Tianfeng Securities Co.Ltd(601162) Institute
Not only did the interest rate drop, but the MLF continued to operate in excess, and the reverse repo operation was also larger than that in the early stage.
The people’s Bank of China has launched an MLF operation of 700 billion yuan this time, with a bid winning interest rate of 2.85%; Meanwhile, a 7-day reverse repurchase operation of RMB 100 billion was carried out, with a bid winning interest rate of 2.1%. Data show that during the week from January 17 to 21, a total of 50 billion yuan of reverse repurchase and 500 billion yuan of MLF expired.
“MLF continued to increase the volume and reduce the price, which was stronger than expected, reflecting that the people’s Bank of China has strengthened counter cyclical regulation and stabilized market confidence.” Zhou Maohua, a macro researcher of the financial market department, believes that this is mainly due to the triple pressure on the economy. The financial data in recent two months reflect the weak financing demand of the real economy. In addition, the Fed’s interest rate increase may be ahead of schedule and intensified, which are all the reasons for the cost and interest rate reduction.
Many market participants also said that it is necessary to cut interest rates at present. Zhang Jiqiang, chief analyst of Huatai Securities Co.Ltd(601688) fixed income, believes that cutting interest rates will help enterprises reduce costs and reduce the burden of micro entities; Steady growth has a long way to go. The epidemic situation and the decline of real estate determine that the policy still needs to be moderately overweight. In addition, PPI peaked and fell, which also alleviated the constraints of interest rate reduction.
LPR is expected to follow up and reduce
Previously, some industry experts said that the interest rate cut would help to reduce social financing costs and boost demand. In addition, considering that the Federal Reserve may accelerate the tightening of monetary policy, the interest rate cut also has a certain “rush” meaning.
Lian Ping, chief economist of Zhixin investment and President of the Research Institute, said that the current market’s expectation of the Fed’s first interest rate increase was further advanced to March 2022. In addition, China’s CPI and PPI fell year-on-year in December 2021, and inflation expectations fell, making the first quarter of 2022 a better window for interest rate reduction. Meanwhile, as a medium and long-term policy interest rate, reducing MLF interest rate will promote medium and long-term credit growth and achieve the policy effect of optimizing credit structure.
Compared with the last MLF interest rate reduction of 20 basis points, the magnitude of this reduction is reduced. In this regard, Lian Ping explained that the 1.2 trillion yuan of long-term funds released by the RRR reduction in December 2021 have not been fully applied to the real economy, and the driving effect on credit growth will be concentrated in early 2022. In the case of the Fed’s expectation of raising interest rates in advance, there is limited room to significantly reduce the MLF interest rate, so it is more appropriate to reduce the range of 10 basis points.
What does the MLF interest rate cut mean? Zhang Xu, chief fixed income analyst, said that MLF interest rate is the anchor of bond market pricing. In the past month, the market was full of expectations of MLF interest rate cut, so the yield of 10-year Treasury bonds also fell from about 2.85% to below 2.80%. MLF can become a pricing anchor at least because of the following two points: first, MLF interest rate is a policy interest rate; Second, MLF interest rates affect many financial products with large scale. It is difficult for other interest rates in the market to meet these two points at the same time.
Looking back, Zhou Maohua expects that MLF interest rate is the anchor of LPR interest rate, which may lead to the simultaneous reduction of LPR interest rate by 10 basis points this month.
interest rate cut is good for many sectors
The market generally believes that the interest rate cut is good for real estate, banking, securities, nonferrous metals and other sectors in the A-share market.
Combing the performance of Shanghai index after previous MLF interest rate cuts, it is found that Shanghai index mostly closed up after interest rate cuts. It will rise by 0.31% on April 16, 2020, 0.05% on February 18, 2020, 0.43% on November 6, 2019 and 1.91% on February 22, 2019.
Zheshang Securities Co.Ltd(601878) chief economist Li Chao said that the interest rate cut can moderately alleviate the downward pressure on industries related to the unstable growth chain, and is optimistic about the structural opportunities of the stock market in the future. First, the financial sector, especially the banking sector, may have outstanding performance, mainly benefiting from the growth of banking business scale driven by daily credit in the first quarter of 2021; Second, the real estate and related sectors in the subsequent cycle may benefit from the real estate investment exceeding expectations under the background of “simultaneous rent and purchase”; Third, the field of building materials related to infrastructure may benefit from the advance of infrastructure projects in the first quarter of 2021. In addition, it will also benefit from the higher than expected real estate investment.
Some market participants said that the interest rate cut is conducive to the rise of commodity prices. Most non-ferrous metals are traded in the commodity market, which will stimulate the rise of the non-ferrous sector. At the same time, the interest rate cut will effectively stimulate investment, enhance market demand for real estate, stabilize and boost market expectations for economic prospects, so as to enhance the demand for non-ferrous metal industry.
China Merchants Securities Co.Ltd(600999) macroeconomic analyst Zhang Yiping said that the people’s Bank of China may launch policies and measures such as reducing the reserve requirement in the near future to focus on reversing market expectations, and the “restless spring” market is still expected.
In addition, what about the interest rate after the interest rate cut? Sun Binbin, chief analyst of Tianfeng Securities Co.Ltd(601162) fixed income, believes that the Treasury bond interest rate will decline after the previous policy interest rate cuts, but there is uncertainty whether it can continue to decline.
Much more than expected! The central bank suddenly “cut interest rates” by 10 basis points! This interest rate is expected to be lowered again, which is related to your mortgage
Far more than expected! The central bank’s two major policy interest rates fell simultaneously! The reverse repo rate has been cut for the first time in 21 months! What signal?!
Macro Investment: cold thoughts on interest rate reduction
