The Ukrainian crisis reduced market risk appetite and further amplified market volatility during the emotional fragility of US stocks
U.S. stocks fluctuated sharply overnight, with the Dow and Nasdaq falling by 3.2% and 4.9% respectively, then rebounded sharply and finally closed up; U.S. debt, the U.S. dollar and gold all rose sharply during the day, and then the decline narrowed. The intraday asset price changes mainly reflect the geopolitical conflict risk of the Ukrainian crisis. This round of risk mainly stems from Russia's significant increase in troops on the Ukrainian Russian border in response to the expansion of NATO's forces in Ukraine after the publication of the draft security agreement between the United States and NATO in mid January. Since the core force of NATO is still the United States, the essence of the conflict is still the confrontation between the United States, Europe and Russia. On the Russian side, more than 100000 troops have been significantly increased on the Ukrainian Russian border recently, and large-scale military exercises are planned. The United States, on the one hand, delivered weapons to Ukraine and sent aircraft carriers to carry out military exercises in the Mediterranean on January 24; The other is that the US State Department also ordered the evacuation of the families of the Embassy in Ukraine. From the perspective of asset prices, on the one hand, the escalating friction between the United States and Russia enhances the expectation of military conflict, reduces the risk appetite of the market and drives the price of safe haven assets higher; On the other hand, since the beginning of the year, US equity has been in a continuous correction channel. The potential black swan event in Ukraine has further amplified the volatility of the equity market.
The core purpose of the United States and Russia is to exchange negotiation advantages through local confrontation. There is a possibility of conflict, but the probability of large-scale fermentation is low
We believe that the recent crisis in Ukraine apparently stems from the security agreement proposed by Russia and asked the United States and NATO to sign (proposing that NATO will no longer expand eastward and will not accept Ukraine as a member of NATO). The core is still the deep-seated comprehensive confrontation between the United States and Russia. Putin and Biden met in June 2021 and conducted extensive discussions on Ukraine, cyber security, human rights and economic sanctions against Russia. The White House also issued a joint statement entitled "strategic stability" after the meeting, and pointed out that the two countries will continue to carry out bilateral strategic dialogue in the future. The second round of "general worship meeting" in December 2021 and the security negotiations between the United States and Russia in Geneva on January 10, 2022 are derivatives after the first "general worship meeting". This military conflict is also a partial reaction of the United States and Russia in many conflict areas. According to the current situation, we believe that there is a possibility of military conflict on the border between Ukraine and Russia in the future, but the possibility of large-scale fermentation is small. First, we believe that the core purpose of the United States and Russia is still to exchange confrontation in local areas for the negotiating advantage of comprehensive negotiation. Large-scale military conflict is not the purpose. Biden also made clear his opposition to nuclear war in the "General Assembly". Second, the world, especially the United States, is currently facing significant inflationary pressure. Russia, as an important energy exporter in the field of oil and gas, has the potential risk of contributing to global inflation when the United States and Russia launch a comprehensive confrontation at the current stage.
In short-term allocation, grasp the risk aversion caused by repeated risk events. Gold + stock is a better allocation choice for the Spring Festival
Under the impact of the Ukrainian crisis, we believe that gold + stocks or the Spring Festival holiday are better asset holding options. On the one hand, there is uncertainty in the fermentation of short-term geo risk events, and the phased evolution is higher than expected, which may boost the price of safe haven assets, and gold can be allocated in the short term (but the gold price may be corrected after geo risk mitigation); In terms of equity assets, it is expected that the impact of overseas risks will gradually weaken during the holiday. On the one hand, the probability of large-scale fermentation of geopolitical risks is low (the asset prices damaged by the impact of short-term risk appetite may be repaired). On the other hand, we believe that US stocks still have rebound momentum before the first potential interest rate hike in March.
First, the accelerated tightening of short-term liquidity at the valuation end is expected to ease. The decision of the Federal Reserve on interest rate discussion will be announced on January 27. Powell is expected to give further guidance on the path of monetary policy normalization, when to raise interest rates for the first time and the range of interest rate increase for the first time, which will weaken the market's concerns about the tightening of short-term liquidity beyond expectations, and the process of killing valuation of US stocks will come to an end temporarily.
Second, the profit side is still the driving factor of US stocks in the short term. At present, the proportion of Q4 performance exceeding expectations announced by S & P 500 component companies in 2021 has reached 79.7%, which is lower than the Q3 margin in 2021, but still higher than the level in 2020. In the short term, profit is still the driving factor of US stocks rebound. Before the first interest rate hike in March, US stocks still had rebound momentum.
In March 2022, be alert to the correction of US stocks, and focus on the game of the first interest rate increase and the upside down of term spread in the future
In terms of U.S. stocks, in March 2022 (i.e. after the first interest rate increase), it is necessary to be vigilant against the sharp correction of U.S. stocks due to the dual pressure of valuation and profit under the background of tightening expectations and increasing downward pressure on the economy; Thereafter, if the interest rate increase is less than expected, it will gradually repair the previous decline. We believe that we need to focus on two major time points in the future: first, the game of raising interest rates for the first time, and we need to focus on the challenge of raising interest rates "from 0 to 1" to US stocks with high valuation; Two, if the US stock market is subject to the "first interest rate increase" test, the focus should be shifted to the change in the term of the 10 year -2 period. The term spreads will easily pierce the US stock bubble. The essence of the signal is also a combination of increased valuation pressure and a worsening economic outlook, which will result in a continuous increase in interest rates by the Federal Reserve. Judging from the changes in the yield of the current 10-year and 2-year treasury bonds, the current term interest spread has narrowed to less than 90BP, and the yield may be upside down after four interest rate hikes.
The yield of US bonds may rise to 2% in the short term, and the central line of high and low throughout the year will decline, and the dollar will tend to decline after the high shock
In terms of U.S. debt, Q1 we believe that the yield of 10-year U.S. debt still has upward action driven by tightening expectations, and the peak may reach 2%; Since then, the interest rate increase is not as strong as expected, which will reduce the constraints on policy interest rates. The US bond yield will reflect the expectation that inflation and fundamentals will both fall, showing a central downward trend from high to low throughout the year. From the perspective of structure, the overall trend will be alternating between the rise of real interest rate and the decline of inflation expectation (it is expected that the upward stage of real interest rate will mainly focus on the first half of the year, and it will also turn downward in the second half of the year, which is good for the trend of gold price).
In terms of the US dollar, we maintain our previous judgment that the expectation of short-term interest rate hike may drive the US dollar index to continue to fluctuate at a high level; At present, the market's pricing for the deviation from European and American monetary policies has reached a relatively extreme state, The US interest rate hike in 2022 is not as strong as expected (the deviation degree of monetary policies in Europe and the United States will converge in 2022. The European Central Bank is optimistic about inflation and is constrained by debt problems. It has repeatedly pointed out that the probability of interest rate hike in 2022 is very low. For details, please refer to the previous report "whether there will be a tide of interest rate hikes by the central banks of developed countries") and the European reserve replenishment will soon lag behind the US, The dollar index is expected to return to the downward channel and dip 90.
Risk warning: the epidemic situation exceeded expectations, resulting in the extension of the easing cycle; Higher than expected inflation led to rapid tightening by the Federal Reserve.
