What is the need to pay attention to raising interest rates?

Summary:

Before and after the Fed meeting on interest rates, the focus of the market was concentrated on this, but in fact, the recent statement by the European and Japanese central banks also contained significant changes in monetary policy:

In terms of its impact, whether the market pays attention to the Fed’s interest rate increase of 3 or 4 times, or the European and Japanese version of the interest rate hike “shrinking the table”, its decision-making basis is inflation, and the behavior itself will only bring fluctuations rather than trend changes. . Based on inflation, we maintain our early judgment: the US dollar is still in the upward pressure in the short term, and the US bond yield is waiting for inflation to be confirmed, and then it starts to rise.

What is the need to pay attention to raising interest rates?

In the early morning of March 22, Beijing time, the Federal Reserve’s decision on the March meeting on interest rates was announced. Then, the chairman of the Federal Reserve, Powell, held a press conference. For the key issues that need attention, we commented as follows:

(1) Interest rate increase of 25BP, as expected, reiterated that it will further increase interest rates gradually, but both the resolution and Powell’s speech mean that interest rates will be raised twice in 2018, which is different from Powell’s speech in Congress in February. The market is expected to raise interest rates four times a year;

(2) However, it should be noted that although the current position is still to raise interest rates three times throughout the year, compared with the end of last year and the current interest rate bitmap, it is clear that more members support the interest rate increase four times, basically The support rate of raising interest rates three times has formed a flat, so the Fed’s overall interest rate hike attitude tends to be “biased”;

(3) On the basis of decision-making, the Fed further lowered the unemployment rate in 2018 to 3.8% (expected to be 3.9% in December 2017), but still maintained the expected level of core PCE 1.9% in 2018; Powell continued In the press conference, I was surprised that the growth rate of salary was lower than expected. I believe that there is no sign that inflation will rise rapidly, but I think inflation will rise in the next few months;

(4) It can be seen that the salary performance is not as strong as expected, which in turn leads to a relatively slow rate of inflation recovery. This is the core difference between the March meeting and the February report of the Powell Congress. Due to the subtle changes in the decision-making basis, It has brought about changes in the attitude of the interest rate increase path. Therefore, for the market, the future game is still the inflation trend.

Before and after the Fed meeting on interest rates, the focus of the market was concentrated on this, but in fact, the recent statement by the European and Japanese central banks also contains significant changes in monetary policy. We should pay more attention to this after the interest rate rises:

Beijing time on March 19, Reuters reported: the European Central Bank to support the end of QE at the end of the year, the first quarter of next year, the first rate hike is expected to be satisfied, then the euro significantly increased.

On March 20th, the Bank of Japan’s deputy governor, Yukio Masaaki, publicly stated that it is not possible to rule out interest rate hikes until the 2% inflation target is reached.

The ECB’s resolution in the March meeting of interest rates has made it clear that the primary task of monetary policy is the normalization of the balance sheet. This time, the statement still adheres to the rhythm of exiting QE before raising interest rates, combined with the fluctuations of the Bank of Japan. The rhythm of asset purchases and the interest rate hikes of “unknown language” can be said that the Euro-Japanese version of the interest rate hike “shrinking the table” (referring to shrinking or exiting QE) is just around the corner.

However, although the talks are all about raising interest rates, the future policy path implicitly described by the European and Japanese central banks is “a world of difference”:

European Central Bank:

The current urgent need of the European Central Bank is the unconventional monetary policy – ​​the withdrawal of asset purchases. The monthly asset purchases from April 2017 have been reduced from 80 billion euros to 60 billion euros, and then reduced to 30 billion euros in January this year, QE The exit only waits for the final closing.

According to the resolutions of the October 2017 and March meeting of the interest rate meeting, the QE plan will last until September 2018, but it is also very reasonable to understand the end of the year as December. Therefore, there are two points in the exit time: September or December. According to previous experience, the European Central Bank is very focused on the expected guidance of the market, the market receives the most clear expected guidance, may be in June or September interest rate meeting (more likely in June).

Bank of Japan:

The core of the Bank of Japan’s current monetary policy is the “return rate control plan”: to control the 10-year bond yield to around zero. The core goal of this program is to bring inflation to a desired level of 2%.

However, due to the long-term downturn in inflation in Japan, and inflation expectations have more significant “adaptation” than in Europe and the United States, in order to boost the stimulus effect of the policy, the Bank of Japan has made a setting: inflation exceeds the target setting, which is the actual “observation”. The inflation reached was significantly more than 2%, and the corresponding adjustment of monetary policy was made.

Based on the current level of inflation in Japan, it can be judged that the Bank of Japan will not stop asset purchases for a long time, but it should be noted that:

The Bank of Japan’s current policy goal is not the scale of asset purchases, but the yield of 10-year Treasury bonds. As the economic situation changes, the amount of corresponding asset purchases can be changed, that is, the asset purchase elasticity of the target is changing. - We can already see that the Bank of Japan has reduced its asset purchases during the economic recovery process.

Therefore, in summary, the ECB’s rhythm should be: first reduce QE in September or December, and raise interest rates again in mid-2019; the pace of the Bank of Japan is: uncertain interest rate hikes and “thunders and rains” The QE is reduced.

What effect will it have?

The interest rate hike will mainly slowly infiltrate the asset premium through expectations, and will gradually raise the European debt and Japanese bond yields. However, due to the euro zone's interest rate hike in the second quarter of next year, the Bank of Japan is ignorant (also clearly stated that it will not be short-term). Therefore, the speed and magnitude will be slower, not a major upswing, and the right to speak on the rate hike is still in the Fed.

When exiting QE, Japan is still not possible during the year. The European Central Bank needs to pay attention to the timing and specific content of its expected guidance. This will be the earliest in June. Therefore, in addition to the impact of the ECB’s expected guidance, It is still a major contradiction in the scale of asset purchases in the ring.

What is the main contradiction?

Concerned about the fact that before the Fed’s decision on the interest rate meeting, the market had an obvious expectation of raising interest rates four times. The factor that triggered us was that in the previous report, what was the difference between Powell’s debut? Discussed: The essential reason is not the change in the attitude of the central bank, but the change in the basis of decision-making – especially inflation.

In the context of the European Bank of Japan's single focus on "inflation," this constraint is even more obvious. Whether it is the process of raising interest rates and the complete pricing of assets, it must be based on the performance of inflation itself.

In summary, we believe that whether it is the Fed's four interest rate hikes, or the seemingly coming European and Japanese version of the interest rate hike, the basis for decision-making is inflation, and the behavior itself will only bring about fluctuations rather than trend changes. Based on inflation, we maintain our early judgment: the US dollar is still in the upward pressure in the short term, and the US bond yield is waiting for inflation to be confirmed, and then it starts to rise.

List of major overseas economic data and major events

Relevant market performance

Overseas equity market

In the first two weeks, the global equity market as a whole rose. Developed markets are up 1.53%, emerging markets are up 3.15%, European markets are up 1.37%, Asia Pacific is up 3.23%, and BRICs are up 3.30%. In terms of regions, US stocks rose slightly, with Hong Kong stocks up 5.41%, Germany up 2.47%, France up 2.24%, UK up 0.68%, Japan up 3.02%, Russia down 1.97%, South Korea up 5.85%, India down 0.18%, Brazil is down 1.32%.

Overseas funds and bond market

In the past two weeks, with the 3-month LIBOR rate, the US dollar 3MLIBOR is up 14.26bp to 2.1775%, the yen is down 0.784bp, the euro remains unchanged, the pound is up 1.698bp, and the Swiss franc is up 0.06bp. USD LIBOR was down 0.25 bp overnight, 1W was up 11.093 bp, 1M was up 10.65 bp, 2M was up 8.549 bp, 3M was up 14.26 bp, 6M was up 11.246 bp, and 12M was up 10.344 bp.

In terms of bonds, the short-term US bond yields rose across the board, and the long-term US bond yields fell across the board. In terms of 10Y bond yields, the yield of US Treasury bonds fell by 3bp, Japan was up by 0.2bp, the UK was down by 5.93bp, Germany was down by 4bp, and France was down by 8.3bp.

exchange rate

In the first two weeks, affected by factors such as the minutes of major central banks and the US trade plan, the US dollar strengthened and the US dollar index rose 0.21%. The yen rose 0.19%, the euro fell 0.37%, and the pound rose 0.69%.

In the past two weeks, the dollar has risen against the yuan. CHN HIBOR (except overnight) went down in full, and the spread between the mainland and the mainland narrowed.

Commodity

In the past two weeks, the food spot was down 1.45%, the poultry spot was down 1.57%, and the metal spot was up 0.54%. Live cattle futures are down 9.5%, rebar futures are down 5.7%, iron ore futures are down 7.0%, coking coal futures are down 6.3%, nickel futures are up 1.4%, oil futures are up 0.5%, and natural gas futures are up 0.7%.

risk warning

Changes in overseas inflation; overseas economic conditions.

Important statement

Market risk, the investment need to be cautious. In any event, the information contained in this WeChat platform or the opinions expressed does not constitute investment advice for anyone.

Note: The report in the article is selected from the Tianfeng Securities Research Institute and has published the research report. The specific report content and related risk tips are detailed in the full report.

Securities research report "Flying interest rate landing, what else needs attention? 》

Published on March 22, 2017

This article was first published on the WeChat public account: The content of the article belongs to the author's personal opinion and does not represent the position of Hexun.com. Investors should act accordingly, at their own risk.

(Editor: Tao Hailing HF003)

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