On September 19, 2024, the Federal Reserve conducted its first interest rate cut in four years, a one-time reduction of 50 basis points, which is not a small amount.
Why is everyone so concerned about the Federal Reserve's operations?
Because it is the largest tap of global funds. Whether it is open or closed? How much is it opened? It affects the water level of the global fund pool and is related to everyone's money bags.
Then, on the Chinese side, a series of chain reactions and subtle changes began to continue to appear.
On September 24, the central bank, the financial regulatory authority, and the securities regulatory commission held a joint meeting on "Financial Support for High-Quality Economic Development."
At this meeting, the highest level provided the market with a series of market-saving policies.
If you are not aware, please click on the following large picture - extremely detailed.
The relevant content is the core hot topic of the recent internet and public opinion. This number has also published two related analyses and discussions, so I will not elaborate here.
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With the introduction of a series of market confidence-boosting policies by the central bank on September 24, the Chinese financial field quickly ushered in two subtle but important changes:
One is that the yuan exchange rate has been boosted. On the morning of September 25, the offshore yuan exchange rate continued to rise, once touching the exchange rate of 6.9952, breaking through the integer threshold of 7.0, which is the highest point since May last year, and then the offshore yuan has retreated.Although the offshore RMB briefly broke through the "7" mark and then returned above 7, it still holds significant meaning for the RMB exchange rate. On another note, on September 24th, the bond market experienced another sharp correction, with long-term bond prices falling more noticeably. By the close of trading, the 30-year government bond futures main contract fell by 0.99%, with the maximum intraday drop exceeding 1%; the 10-year government bond futures main contract fell by 0.24%, with the maximum intraday drop exceeding 0.3%. The performance of the bond market does not seem like a reversal but rather a short-term stress response after being impacted by a new policy combination. On September 25th, the domestic bond market returned to an upward trend. On one hand, the Federal Reserve officially started the interest rate reduction cycle, and on the other hand, it is the latest series of substantial policy combinations from the domestic central bank. Distinguishing between the weapons of criticism (verbal guidance) and the criticism of weapons (substantial policies) is an important first step. Under their combined effect, the financial dimension in China has shown a "double bull" performance in the bond and foreign exchange markets. Contrary to some market expectations, this performance actually has underlying financial game dynamics and corresponding trend signals that deserve attention. This article will meticulously sort out the latest trends in the RMB exchange rate and the bond market after the Federal Reserve's latest interest rate cut and under the heavy policy combination of the central bank, combining several key realities of the domestic economy. Starting from the perspective of respecting common sense and laws, it will deeply explore the key logic and real signals behind the latest trends in these two key financial fields, and conduct an in-depth, opinionated, and well-founded special discussion and analysis of several possible directions and changes in the subsequent domestic economic environment.Offshore Renminbi breaks the 7.0 mark for the first time in 16 months! How should we view this?
On the morning of September 25th, the exchange rate of offshore Renminbi against the US dollar broke through the "7" threshold, with the lowest reported at 6.9951. This marks the Renminbi's return to the "6" range for the first time in 16 months.
Although the offshore Renminbi subsequently returned to the "7" level, the fact that the exchange rate once broke through the "7" mark is still highly significant.
On September 24th, the central bank governor Pan Gongsheng stated: The Federal Reserve's interest rate cut of 50 basis points is the first rate cut after several years of the interest rate hike cycle, indicating that the monetary policies of major economies have entered a rate-cutting cycle, and the appreciation momentum of the US dollar has weakened. As the difference between domestic and international monetary policy cycles converges, the external pressure on the Renminbi exchange rate has significantly eased.
With the Federal Reserve entering a rate-cutting cycle, the pressure for the US dollar to appreciate is not significant, and the Renminbi exchange rate against the US dollar is expected to enter a fluctuating but stronger trend.
Historically, whenever the Federal Reserve enters a rate-cutting cycle, global housing prices tend to rebound to varying degrees. During this round of rate cuts by the Federal Reserve, China is also in a rate-cutting cycle. If the Renminbi exchange rate remains stable or even shows a stronger trend, internally, lower interest rates provide a comfortable market environment for the real estate market.
Externally, a stable or stronger Renminbi is conducive to further inflow of hot money into China.
The above represents the decent rhetoric that can be considered mainstream analysis and viewpoints.However, for a country like China that is highly dependent on foreign trade exports to create economic growth, a continuous appreciation of the Renminbi exchange rate in the short term may not necessarily be a completely positive signal or trend.
Exchange rates are essentially a public manifestation of distortions and inaccuracies that inevitably exist under the surface of monetary environments and financial market rules. The factors influencing exchange rates are highly diverse, including economic growth, monetary policy, financial markets, geopolitical factors, and sudden risk events, all of which can impact exchange rates.
For countries that generate revenue from export-oriented activities, a strong currency is not necessarily a good thing, as it can lead to the compression of export trade and hinder the enthusiasm of foreign trade operators to exchange currency.
A representative example is Japan, after the "Plaza Accord" on September 22, 1985, the Japanese yen experienced a continuous appreciation, which ultimately led to the collapse of domestic asset bubbles and plunged Japan into what is known as the "Lost Decade."
Contrary to some current views that advocate for the "completely positive" nature of a strong Renminbi exchange rate, from the perspective of economic reality and logic, it is more in line with the direction of China's export-oriented economic growth and development for the Renminbi to maintain a controllable, moderate relative stability, or a slow depreciation against the US dollar.
China earns money through exports, so a depreciation of the offshore Renminbi is not a bad thing. Considering that even though the Federal Reserve has started to cut interest rates, there is still a difference in interest rates between China and the United States, an appropriate depreciation can also alleviate the pressure of domestic capital flight and outflow.
It is worth noting that the offshore Renminbi exchange rate is formed in the Hong Kong market. Hong Kong is akin to the offshore assets, with high winds and rough waves, and there are virtually no barriers to capital flow, making it significantly influenced by international markets.
The offshore Renminbi breaking the 7 threshold first indicates that international speculative capital, hot money, and speculative funds are beginning to attempt to increase their entry into China through the offshore Renminbi exchange model.
After these capitals "take a bath" in Hong Kong, they can enter the domestic market through agents and representative companies via many channels.Of course, this money is definitely not coming to provide timely help, but it is definitely coming to bottom fish and ambush.
The People's Bank of China's position on exchange rate policy is clear and transparent.
There are several key points:
First, we adhere to the decisive role of the market in the formation of exchange rates and maintain exchange rate flexibility.
Second, we need to strengthen expectation guidance to prevent the foreign exchange market from forming a one-sided consensus expectation and self-fulfilling, to prevent the risk of exchange rate over-adjustment, and to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
Therefore, for the RMB exchange rate, it is essential to grasp the key: short-term ups and downs are not allowed by the country, and from the economic logic of China's export-oriented economy, continuous stability and moderate devaluation are logical and realistic.
At this time, the groups and voices that advocate that the RMB exchange rate is strong and a major benefit may not have good intentions.
2
The domestic bond market has been bullish all the way, and the essence and signal corresponding to it, is it good or bad?
In the second half of 2024, the subtle game between the official and institutions around the Chinese bond market, in fact, from the perspective of the market, the intentions and results of the "visible hand" have not been achieved.Over the past few months, the central bank has repeatedly warned of risks related to the bond market and has taken action on multiple fronts to continuously suppress the bullish momentum in bonds.
On September 24th, the central bank once again highlighted the risks of a one-sided downward trend in long-term government bond yields and stated that it would increase its efforts to investigate and punish illegal and non-compliant activities in the interbank bond market.
So, what has been the outcome? Apart from a pullback on September 24th due to the impact of policy implementation, let's look at the market performance and see what the situation is.
A bare-headed bullish candlestick continuously breaks through previous highs directly.
There have been several rounds of adjustments in between, and everyone can look up the corresponding times; they are all the results of the central bank and the state's intervention.
However, within a few days, the bond market was able to reclaim its lost ground and return to a bullish trend. This is not just any bull market; it is a stubborn bull, a strong bull.
The previous adjustments did not push down the prices of government bonds; instead, they released risks and set new highs.
It is clear at a glance that this is no joking matter.
This round of domestic bond bull market is extremely darkly humorous, with the slaps echoing loudly, and everyone knows whose face is being slapped.
The bull market in bonds is a signal of market consensus on risk aversion and the trend of recession trading. Objectively speaking, for the economic environment, assets, and financial markets outside of market participants, encountering a bull market in bonds is not a good signal.True scale capital is clustering and buying bonds speculatively, which inevitably leads to liquidity tension, or even depletion, in the economic environment.
On September 25th, the domestic bond market once again showed a bull market performance, which, I'm afraid, is not a positive and good signal, is it?
In fact, the market's collective behavior is not the fault of investors. Capital is profit-driven and avoids harm. In the face of real interests, no one talks about political correctness with you.
As long as there is certainty in the downward trend of interest rates, there will definitely be a certainty in the upward trend of government bonds. This logic is universally applicable worldwide.
Anyone with a bit of economic experience and financial knowledge should know this logic.
Combined with the central bank's new policy combination on September 24th, the probability and trend certainty of the domestic bond market turning bullish are actually very obvious.
So the question arises: if the consensus of institutions and capital clustering in the bond market is not reversed, how can liquidity in the economic environment be released?
Trend judgment: Next, can China achieve the transformation from a "bond and exchange bull market" to a "stock and real estate bull market"?
After September 24th, there is such a viewpoint in the public opinion environment:Previously, it was the bond market bull, now it's the bond market + foreign exchange market double bull.
Next, the stock market and the real estate market will follow suit.
The stock market is relatively easier to warm up, while the real estate market is more complex and will show significant differentiation.
Personally, I think such a statement is somewhat idealized.
The stock market on September 25th was actually very exciting:
The market continued the high spirits of September 24th, and in the morning, the market sentiment was very excited. Under the circumstance that the Shanghai Composite Index (SCI) had surged by 4.15% the previous day, the maximum intraday increase once again reached 3%, and it reached 2950 points, not only recovering 2900 points but also showing a desire to challenge 3000 points.
The root of this phenomenon lies in the crazy rise of securities companies. The index of securities companies on September 24th increased by 5.91%, and on September 25th, it continued to open high and rise. By 10:19 AM, the maximum increase of the securities company index reached 4.56%. In this way, the increase of securities in two consecutive days exceeded 10%, and it can be said that the money-making effect of securities is very obvious.
Because securities have a more obvious pull on market popularity and have a clear incentive effect on banks and insurance companies, it can be said that the upward movement of financial stocks in the morning made an important contribution to the market's breakthrough of 2900 points and the challenge of 3000 points, making the adjustment of the past 39 trading days be reversed in just 6 trading days. This kind of bullish momentum has not appeared for a long time.
But it's interesting that after 10:19, there was a sudden dive, what's the situation?
When everyone was excited, after 10:19, the market ushered in a more powerful dive. The SCI dived from an increase of 88 points to an increase of 26 points. It can be said that the intraday loss was 62 points of the increase, and the increase also shrank from a maximum of 3% to 1%.Looking at the positive effects of this round, the market's upward momentum should not be limited to just two days, right?
Hehe... At the end of the day, isn't it still a lack of confidence and expectation among market funds and institutions to take a bullish stance on domestic assets?
Judging by this wavering faith and lack of staying power, it's not difficult to foresee the likely direction of China's stock market in the future.
The content of the new policy on September 24th is flawless in terms of the policy itself.
In a word, it's good! The biggest difference between this policy release and previous ones is the unexpected expectation management.
For instance, the two new monetary tools to save the stock market have completely exceeded the market's previous expectations.
It's likely that no institution or economist could have imagined that the central bank would not only personally step in to inject liquidity into the stock market but also lend money to listed companies for market value management.
As for the real estate market, the focus is mainly on easing the pressure of the existing stock, without addressing the most critical issue in the current domestic economy:
What the household sector lacks is not a "bottom in their hearts," but rather "money in their pockets"!
The repair of the stock market allows trapped investors to break even, and with expectations on their side, the first day is quite strong, but the second day shows a clear softening;The repair of the real estate market and housing prices, objectively speaking, is still currently focused on stimulating the residential sector within the market. Stabilizing expectations and nurturing stability are not issues, but to say that there will be any significant performance in terms of transactions and heat, I'm afraid, is far from enough.
It's also unclear whether those who are currently hyping the central bank's new policy of 924, calling it an epic and a major shift, are feeling anxious inside?
Or are they trying to create a momentum to free themselves or gain some benefits?
We are all adults, there's no need to be shy, but such plans, I'm afraid, don't have much imagination.
Rational prediction, next, the stability of the exchange rate, and the continuous suppression and guidance of the domestic bond bull market, are more important than the realization of the stock and real estate market trends.
In conclusion:
By sorting out the latest developments and performances in the two latest financial fields in China, what conclusions and inspirations can be drawn?
Next, the pace and direction of the Federal Reserve's interest rate cuts still need to be confirmed, and countries and economies around the world are actually in a state of attention.
This awareness is very important, and for China, it is the same. The favorable combination of policies of the 924 new policy is indeed inspiring and has a good short-term driving and exemplary effect on the domestic economic expectation level.
However, to say that we can fully unleash our strength and go all out, from the perspective of the uncertainty of the overall environment, I'm afraid it won't be realized so quickly.Invisible dimensions and battlefields are still engaged in perilous games and struggles for certainty.
Whether from the macro perspective of great power games or from the realistic angle of domestic economic conditions, it is important to acknowledge positive signals, but the actual effects should be approached with caution.
From an individual's perspective, this logic is crucial.
Without resorting to grand macro terms, starting from the tangible economic experience, if one does not genuinely feel a change in temperature, it is advisable not to hastily alter the current appropriate attire and actions.
The nation's resolute attitude towards economic stimulation is beyond dispute, but some things do not yield results overnight.
The current judgment is that cash is king and to steer clear of speculation. A crucial observation window is domestic employment and income.
Before any significant and noteworthy changes occur in the observation window, it is not recommended to engage in any risky behavior with uncertain risks.
Is this a conscientious viewpoint?
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