SMM News: federal Reserve Chairman Powell hinted at his attitude to cut interest rates, U. S. stocks rebounded last night, the three major stock indexes rose more than 2%, and the biggest one-day gain since January 4, the Dow closed up more than 500 points.
Now that the global central bank has begun a new cycle of interest rate cuts and a new easing cycle is about to emerge, whether the people's Bank of China will follow the "interest rate cut" has become the focus of market attention. The analysis shows that the monetary policy is facing the pressure of short-term capital maturity in June, and the goal of continuing to reduce the financing cost and stabilize the economy in the long run, and it is expected that the monetary policy will become more marginal.
Six central banks around the world cut interest rates
According to Wind statistics, since the beginning of the year, six central banks around the world have announced interest rate cuts. So far, cash rates are at an all-time low of 125% in Australia and 1.5% in New Zealand.
On February 7 this year, the Bank of India led the world in starting the first round of interest rate cuts, cutting interest rates by 25 BP, followed by a second cut in 25bp on April 4.
On February 15th Egypt's central bank slashed interest rates by 100 basis points.
On May 7, the Bank of Malaysia announced that it would cut its overnight policy rate by 25 basis points to 3%.
On May 9, the central bank of the Philippines cut its key interest rate by 25 basis points to 4.5%, the first rate cut since 2016.
On May 10th the New Zealand Fed cut interest rates by 25 basis points to 1.5 per cent.
On June 4, the Australian Federal Reserve announced an interest rate decision to cut the June cash rate by 25 basis points to 1.25%.
In addition, although some central banks have not indicated a cut in interest rates, but easing expectations are already on the way. At the ECB's interest rate meeting on March 7 this year, in addition to keeping the three benchmark interest rates unchanged, the ECB unexpectedly announced that it would launch a new round of targeted long-term refinancing operation (TLTRO),. This unexpected "European release" caused the euro to fall against the dollar in the short term. On the inflation side, after hitting a five-month high in April, inflation in the euro zone fell again in May to its lowest level in more than a year. At a time when inflation has not improved, the market believes that the European Central Bank may offer more stimulus measures. Mr Draghi, the ECB president, may prove once again that he can be more dovish than markets expect. For its part, Bank of Japan Governor Toshihiko Kuroda recently said the Bank of Japan would continue to ease its policies to support the Japanese economy.
Citic Securities clearly pointed out that from the overall performance of the world's central banks, the current monetary policy of the world's major central banks continue to shift to the dove direction.
The Federal Reserve hinted at a rate cut
Last night, Federal Reserve Chairman Powell made his latest public speech, hinting at his attitude towards cutting interest rates. Powell said the Fed will take appropriate measures to maintain sustained economic expansion and is paying close attention to the impact of trade negotiations and other events on the prospects of the US economy.
"We don't know how or when trade issues and other events will be resolved, and the Fed will always use the right measures to support this round of economic expansion." Powell said that US core inflation has been slightly below 2 per cent in the past 12 months, and if this "low surprise" continues, it will bring the US benchmark currency interest rate closer to the effective lower limit of (ELB),. The Fed must and has taken seriously the risk of substandard inflation, which, if sustained in a healthy economy, could lead to a decline in inflation expectations that is hard to resist.
It is worth noting that Powell's speech aroused widespread concern in the market, with the three major US stock indexes rebounding higher, up more than 2 percent, and the biggest one-day gain since January 4.
Xie Yaxuan, a China Merchants Securities, pointed out that Brad, the Federal Reserve Bills Committee, said on Monday that "the Fed may soon need to cut interest rates to boost inflation and lower the downside economic risks posed by the escalating trade war." Superimposed on the recent weak ISM manufacturing PMI data and falling crude oil prices, the 10-year US Treasury yield fell to 2.07% on June 3, and the one-day yield fell sharply by 7bp on Monday. The spread on US Treasuries has deepened over the past two weeks, with the probability of the Fed cutting interest rates in December 2019, based on futures prices, now rising to a new high of 96.1 per cent, while inflation expectations implied in US TIPS yields have also fallen sharply. Judging from the fundamentals of the US economy, the downward trend has been gradually verified by the data, but given that the core US PCE is still 1.6 per cent higher than the March margin from April last year, and whether in China or the US, Current inflation seems to come more from supply-side support, which could lead to a certain risk of "stagflation" in both China and the US, and monetary authorities may face a "dilemma" in the future, which could be an important source of poor market expectations in the future.
Will the people's Bank of China cut interest rates
In the context of a new round of easing cycle initiated by the global central bank, China's monetary policy has added a new contradiction in addition to the original downward pressure on the internal economy, the intensification of trade frictions between China and the United States, and the devaluation of the RMB exchange rate. Will the people's Bank of China cut interest rates in line with global monetary policy?
Citic Securities clearly believes that relative to overseas interest rates, China can appropriately follow global monetary policy to lower policy rates, such as reverse repo rates, leading spreads back to the "comfort zone." In addition, in his speech earlier, the leader of the central bank pointed out that the deposit and loan interest rates are at a reasonable level, and the main task in the future is to promote the integration of two tracks, that is, to maintain the stability of the deposit benchmark interest rate and cancel the loan benchmark interest rate at the same time. At the same time, it may cooperate with the reduction of repo interest rate to guide LPR interest rate down properly and reduce the financing cost of real economy.
With the economic slowdown and the loosening of global monetary policy, an appropriate reduction in policy interest rates, coupled with a stable leverage policy, can better stabilize the economy and improve the quality of the economy. In the external environment of intensified trade war, after the recovery of economic operation in the first quarter, the economic fundamentals have shown a "compensatory decline" since April. PMI has fallen below the line of prosperity and decline for two months in a row, and the downward pressure on the economy has increased. From the experience of the past few years, the financial contraction caused by interest rate deleveraging has been transmitted to the credit contraction, and the impact on the real economy has been shown under the financial accelerator effect. At present, domestic and global economic growth is tired, appropriate reduction of policy interest rates and stable leverage policies will help to achieve the goal of stabilizing the economy.
From the point of view of cost reduction, monetary policy needs to be loosened in order to reduce the comprehensive financing cost of credit for small and micro enterprises. The first quarter monetary policy implementation report mentioned that the weighted average interest rate on general loans rose in the first quarter, while with weaker aggregate demand and base effect, PPI is likely to turn negative in June from a year earlier and is likely to continue until the end of the year. In the case of upward nominal financing costs and negative PPI, the actual financing costs of the real economy may face the risk of going up again. Monetary policy needs to be loosened further to achieve cost reduction.