Today, the applause of the whole market should be "dedicated" to the Fed, because he gave investors a big surprise. 1
This week is the last super central bank week in 2023, and the central banks of the United States, Europe, the United Kingdom, Switzerland and other countries announced their latest interest rate decisions, and the first to perform on stage was Powell, who represented the Federal Reserve. Of course, the most talked-about man in the world did not disappoint everyone.
On December 13, local time, the Federal Reserve announced that it would pause interest rate hikes again in December, and the target range of the federal interest rate would continue to be maintained at 525% to 550% between. So far, in the current tightening cycle from March last year to the present, the Fed has not raised interest rates at three consecutive meetings.
The market has every reason to believe that the current rate hike cycle is completely over.
To be honest, the pause in rate hikes has not allowed the market to get excited, and what really surprised the market was Powell's statement.
Before and after this round of interest rate hike cycle, Powell's consistent style is to "speak hard" and never compromise with the market. Before the rate hike, no matter how much inflation data soared, Powell refused to admit that inflation was here;And after inflation hit a record high and began to raise interest rates one round after another, Powell will never admit that inflation has begun to subside, even if his bank thunders, he will never be soft.
Powell's mouth is harder than his hands.
Even if you have paused interest rate hikes many times, the market has guessed that you are going to continue to pause interest rate hikes, and Powell will never let go, and will never allow the market's expectations to go ahead of him.
At this interest rate meeting in December, Powell not only softened his hands, but also began to soften his mouth, and directly and rarely made a clear statement to the market:
Interest rate cuts are starting to come into view, and policymakers are thinking about when it's appropriate to cut rates. Looking ahead, interest rate cuts have inevitably become a theme. "When is it appropriate to start easing existing policy restrictions, the question is starting to come to the fore, and it's obviously a topic that is being discussed globally and is a topic that we are discussing in the conference today. ”
To further dispel market doubts, he even went so far as to add:
Even if there is no recession, the Fed is willing to cut interest rates. And we won't wait for 2% inflation to cut interest rates, because it will be too late, it will exceed the target, and it will take some time for policy to affect the economy.
Although the Fed has begun to soften on the matter of interest rate cuts, it is still firm in the event of a recession
Powell said there is little reason to expect the economy to fall into a recession, and measured inflation in 2024 from 2.2 in September5% to 24%。2025 from 22% to 21%, and inflation will reach 2% of the regulatory target in 2026;Fine-tuned unemployment rate** to remain at 3 this year8%, and 4 in the year after tomorrow1%, estimated by 4 in 20260% revised upwards to 41%
Regardless of Powell's rhetoric, the absolutely historic statement about the rate cut means that the Fed has begun to surrender to the market.
Compared with this decision, investors are paying more attention to the Fed's economic expectations for December, especially the "dot plot" that implies the expectations of all monetary policymakers to cut interest rates in 2024.
According to the data, the median policy rate expectation of FOMC members for 2024 is 46%, implying a 75 basis point rate cut next year, slightly more than expected, as Wall Street widely expects the "dot plot" to probably only have a 50 basis point cut next year. In addition, their median policy rate expectations for 2025 and 2026 are 36% and 29%。
By way of comparison, in the September dot plot, FOMC members expected a median of 5 percent for the federal interest rate over the next three years1% (corresponding to only one rate cut of 25 basis points.) 9% and 29%。
At the same time, the Fed lowered its interest rate forecast for the end of 2023 to a level consistent with current rates – the strongest signal signaling the end of the rate hike cycle.
The market is more optimistic and extreme than the Fed, and traders are starting to ramp up their bets on rate cuts in 2024, projecting the sum of the probabilities of a 125 and 150 basis point cut to 60%. Not only is the amplitude larger, but the probability of time moving forward is also higher. Traders are now pricing in a 72% chance of a rate cut in March, up from 49% earlier on Wednesday, and a 94% chance of a rate cut in May.
From this perspective, we can also see why Powell must not let the market's expectations be far ahead of his own.
In the face of the Fed's capitulation, financial markets expressed their victory with a carnival.
The three major U.S. stock indexes rose sharply across the board, with the Dow Jones Industrial Index, Nasdaq Index, and S&P 500 Index respectively37%, of which, the Dow rose more than 500 points, standing above 37,000 points, hitting a record high;The S&P 500 rose above 4,700, the S&P 500 and the Nasdaq both hit new highs since the beginning of last year.
U.S. Treasury yields**, with the 2-year yield tumbling 28 basis points to 4451%；The yield on the 10-year Treasury note was 18 basis points at 4026%；2 The 10-year Treasury yield spread was last minus 43 basis points, and the curve inversion has lessened. The yield on the 5-year Treasury fell sharply by 245 basis points, down to 3982%, falling below the 4% mark. 30-year Treasury yield**129 basis points, down to 4175%。
The U.S. Dollar Index also swelled**, measuring the greenback against six major currencies**096%, closing at 10288。
It continued to climb, and COMEX *** rose more than 2%, reaching $48 during the day and standing above $2,040 an ounce.
The offshore yuan rose nearly 600 basis points against the dollar to 71365。
A few more words about the renminbi: At present, the main factors of the fluctuation of the renminbi are still affected by the dollar index and the U.S. macro policy, and with the end of the strong dollar cycle, it also determines that the renminbi has no possibility of continuing to depreciate sharply. Although the U.S. interest rate hike has ended, before the Fed has not made a clear statement to cut interest rates, high interest rates will remain high for a long time, which means that the dollar index will continue to be maintained around 100, and the corresponding yuan should also be at 70 or more.
The main driving force for the sharp appreciation of the renminbi to return to less than 6 still depends on our own thrust, that is, the economic recovery. Judging from the latest economic data, although there has been a marginal improvement in some dataHowever, both consumption and enterprises' willingness to expand is obviously not strong;Coupled with the decline in external demand, the property market recorded the worst golden September and silver ten in history, and the resistance to economic recovery is still relatively strong.
As for the future trend of the yuan, I am inclined to believe that the remaining two months of 2023 will be at 71 Nearby Width**. Whether the ** mode can be opened at the beginning of 2024 depends on how much fiscal force can stimulate the economy in the last two months.
Finally, to sum up:
With the Fed's pivot, the slogan we have been shouting in the past, "Don't fight the Fed", can be changed to "Don't fight the market".
In any case, the U.S. stock market has reached a new high, and ** has also stood at a historical high, and the pressure is all on A-shares!