The situation looks very complicated with the rise and fall of the US economic data, but based on the real pressure of huge US bonds, the Fed is bound to cut interest rates this year, so what is dragging down the Fed's policy pivot at the moment? What factors can be used as a bellwether to observe the change in the Fed's attitude in the future? With so much data, what data do you focus on?
The U.S. Congress has given the Fed two missions, which are known as maximum employment and stability. For the Fed, the data around these two targets are the most important, they are the employment data and the inflation data, respectively. Another indicator that the Fed is very concerned about is the retail sales data, because the United States is a consumption-led country, and consumption is the core. At this time, the retail sales data will guide investors in judging the current situation and prospects of the U.S. economy. To determine the path of the Fed's next rate cuts, it is important to read through these three data. Let's take a look at what exactly is holding back the Fed's policy pivot through analysis.
First of all, the decline in US retail sales data in January is certainly conducive to a rate cut, and even from the breakdown of the report, the data lacks bright spots. For example, in January of this year, the U.S. auto market got off to a poor start due to an unexpected cold snap, with total sales of light trucks and automobiles falling by 6 percent year-on-year8%, which reached only 15 million units. The unexpected decline in car sales is certainly a drag on the retail sales data, but the problem is that even if you deduct the car retail sales, the retail sales data in January is still down 06%, which is lower than the market expectation of an increase of 02%。But January is a special month, as last December, the Christmas shopping season in the United States has just ended. If everyone had bought everything they needed to buy at that time, the demand would have been less strong in January, and this could not be said to be a problem with American consumption.
So, although the January retail sales data is in favor of a rate cut, if you take into account the seasonality, then it is difficult to say that this is 0The 8% decline can give us a clear guideline, so we must not treat the data as a boring number, but look at it in a specific context to really see through and understand.
Let's take a look at the inflation data again, the inflation in the United States in January surprised many people, among them, the CPI was 03%, higher than the expected 02%, a year-on-year increase of 31%, also higher than the expected 2,9%. The Fed's core CPI performance was even worse, with a month-on-month increase of 04%, which is not only higher than the expected 03%, which is also the highest point in the past 7 months, with a year-on-year increase of 39%, which is consistent with the previous value, indicating that the core CPI has not fallen further.
In fact, if you break down the CPI in the United States, you will find that although the inflation problem in the United States is still very stubborn, it shows different characteristics from the previous two years. Previously, inflation in the United States was mainly driven by oil and natural gas. This area is currently handled better, such as Biden previously suspended the approval of LNG export projects, so that a large amount of natural gas that should be used for export may be stranded in the United States. For U.S. energy**, that must be a crackdown. This, of course, is conducive to hedging the pressure on oil prices** and is conducive to reducing inflation. Now the inflation data as a whole exceeds expectations, mainly service-related housing, medical care is too high, like the rent and housing price of housing in the past two years, in fact, it has been slowly affecting the CPI data. As a result, this year, the U.S. Department of Labor further raised the weight of housing in the CPI, so that it suddenly accounted for more than 1 3 of the CPI weight. Why is Biden's Labor Department doing this?
Obviously, they think that the interest rate hike is added to this part, and the house prices, rents and everything should be adjusted. Biden hopes to use it to bring down inflation and get the Fed to cut interest rates sooner, which is beneficial to Biden's campaign. But the Department of Labor turned out to be self-defeating, and the housing segment in January was up 06%, the highest level in nearly a year, up 6% year-on-year. As a result, housing contributed more than 2 3 percent to the overall CPI increase in January, becoming the main reason for this inflation explosion.
Speaking of which, we can understand why the Fed has not dared to cut interest rates until now. It's because inflation in the United States is too sticky. As long as the Fed is a little careless, there is a possibility that US inflation will recur twice, which is not to say that the United States has not experienced it. It is precisely because of the lessons learned that the Fed has acted with particular caution.
At this time, Powell's efforts to fight inflation may fall short if he prematurely cuts interest rates. That's why Biden will relax on the immigration issue and let smugglers into the United States, because these laborers can help reduce inflation. Not to mention, these people will also vote for him in the future.
Retail sales data is instructive, and further downward momentum for inflation is insufficient. Then, for the Fed, the rise and fall of the employment data will actually become the most important data next. There are two employment statistics in the United States, one is the non-farm payrolls data released by the U.S. Department of Labor, and the other is the employment data regularly released by the American automatic data processing company adp, which is known as the small non-farm payrolls.
What is more interesting is that there was a big divergence between the non-farm payrolls data and the small non-farm payrolls data in January this year. Among them, the number of new non-farm payrolls in January was 35330,000, far exceeding the expected value of 180,000, the largest increase since February 2023, and far exceeding the previous 12-month 25The average value of 50,000. On the other hand, the small non-farm payrolls unexpectedly cooled down in January, with 10 jobs70,000, the smallest increase since November 2023, and an expectation of 1450,000 people. Why is there such a big deviation between the two sides of the employment data? In addition to the difference in statistical samples, a greater possibility is the US non-farm payrolls data, which is suspected of being too peaceful.
The Fed's biggest concern now is the resurgence of inflation. Then, in order to control inflation more thoroughly, it has the incentive to release all kinds of glorified data to delay the market's expectations for the timing of its interest rate cuts. Relevant statistics show that nine of the non-farm payrolls data from January to October 2023 were finally revised downward. Only once was it revised in July. If you look at the U.S. data, it sometimes has problems, and there are traces of this operation, but it has to be corrected, and it can't go too far. In other words, data fraud in the United States generally does not take more than a few months. The performance of the U.S. job market is directly related to the health of the U.S. economy and the stability of the labor market.
Now, the United States still dares to release 3530,000 new non-farm payrolls. In fact, on the side, it shows that Powell is still dissatisfied with the current level of inflation, but on the other hand, once the employment data given by the U.S. Department of Labor is weak and echoes the decline in retail data, it means that the Fed believes that the time to cut interest rates has come, and the inflation data is still relatively firm, and the Fed will immediately turn around. So the next jobs data will be the key to our judgment of the Fed's moves.
Now that the Federal Reserve is holding its ground, market expectations have repeatedly jumped sideways, and U.S. stocks have naturally been affected to a certain extent. However, if everyone thinks that as long as the Fed does not cut interest rates, the United States will collapse, it is too simplistic. In fact, we all know that the Federal Reserve has been raising interest rates in the past two years, and its performance is also very British, which is actually not conducive to the United States in theory, and many institutions often say that they are bearish on the United States and the like. But U.S. stocks have been **, and they continue to hit new all-time highs.
Therefore, whether the Fed raises interest rates or postpones the rate cut, it does not seem to affect investors' bullish sentiment on US stocks, which is the key. For example, we can look at the CBOE Volatility Index, or VIX, which reflects the level of panic on Wall Street. This indicator did rise slightly on February 13, exceeding 15, but in the long run, it is still at a relatively low level and the volatility is not obvious. It's used to measure risk, and what does he state at the bottom? It shows that the market does not think that there is a risk now, and even now many institutions are beginning to understand that it does not matter whether to cut interest rates or not.
The really powerful person is Buffett, who never shorts US stocks, just does one thing, chooses a good company, holds it all the time, doesn't even need to look at the market, is simple and affordable, makes a lot of money along the way, easy and happy.
The probability of the next interest rate cut in the United States is very high, and it will definitely cut interest rates in the second half of the year. Therefore, on the whole, it is difficult to really affect the growth momentum of U.S. stocks.
There are technology stocks known as the Big Seven in the U.S. stock market, that is, several technology companies in the early stage of market capitalization. The combined market capitalization of these seven companies is equivalent to the combined market capitalization of Canada, Japan and the United Kingdom. In the past, the ** of U.S. stocks basically relied on these companies to push up. At present, the U.S. market has been simply divided into the seven giants of U.S. stocks, and other 493 S&P 500 index members, like after the release of non-farm data on February 2, the expectation of interest rate cuts has actually dropped, the market sentiment is not very high, and the S&P 100 index ** has also fallen sharply, but in the end, the reason why the S&P 500 can still turn things around is because of technology stocks.
But now these 7 giants have made the market a little worried, because they have risen too high before, and the bubble has naturally accumulated relatively large. Will the Big Seven really turn off the fire, which will lead to the bursting of the entire bubble in the US stock market? Actually, no, for example, for Nvidia, which is now rising too fiercely, Wall Street analysts are actually quite optimistic, in fact, the so-called bubble is just a relative concept, like if the AI field can really take off all the way, the current bubble is nothing, and we can't use the past stock price to **, right? As long as its share price can be supported by performance, then you can't say that it has a lot of bubbles. In fact, there are also many people who now say that if you think about the level of the dot-com bubble in 2000, the US stock market will continue to soar a lot. In other words, compared with that time, measured by the current performance, the U.S. stock market will rise a lot before it can be regarded as a bubble.
So investing is to put money in the right place, in the right market, on good companies, and the rest is to lie down and win, isn't this Buffett's way of making money? There is no need to toss at all. Just pick a good company and take it, whether it goes up or down, and look at the results after a few years.