How long will safe havens last? US Monetary Policy is an Important Influencing Factor

category:Finance
 How long will safe havens last? US Monetary Policy is an Important Influencing Factor


Why call July a hawk cut? Firstly, some investors did not anticipate a 50 basis point cut in interest rates; secondly, after the meeting, Fed Chairman Powell made it clear that this was only a preventive rate cut and adjustment in the monetary policy cycle. In other words, the Feds interest rate cut does not mean that it has opened a new cycle of easing, or even excludes the possibility of another interest rate increase in the future. The hawkish stance of the Federal Reserves monetary policy led to the rise of the dollar, the decline of American stocks, the collective weakening of non-US currencies and the rise of market risk aversion.

In future interest rate meetings, the hawkish attitude of the Federal Reserve needs to be reassessessed, and the current US economic data is clearly divided. Current factors supporting the Feds hawks include: the U.S. unemployment rate remains near a historic low of 3.7%, and the U.S. consumer confidence and spending remain strong. At the same time, the factors supporting the Feds pigeon attitude are: the US PMI manufacturing index fell to the vicinity of the withered and prosperous line, and the US real estate market was depressed. This uncertainty also confuses investors.

At present, the fundamentals of each hedge asset are different, and its future performance depends on its own performance. Gold, yen and most treasury bonds have recently become favorites of money. In addition to the promotion factors brought by hedging sentiment itself, it is also affected by multiple factors such as supply and demand, policy and so on. In terms of the yen, the dollar has depreciated by about 5% against the yen since late April, making the yen the strongest performing currency among the G10 currencies. On the one hand, the interest rate cut by the Federal Reserve weakens the spread advantage of the US dollar, on the other hand, the yen arbitrage trade has also attracted market attention, and the demand for the yen has apparently warmed up. In addition, the Bank of Japans relatively tight monetary policy also supports the yen exchange rate.

As a traditional hedge asset, bonds perform equally well. Since the end of July, the yields of overseas bond markets have fallen sharply. Especially the yields of European multinational bonds have reached a new low. As the locomotive of European economy, the yields of German major bonds have fallen below zero. From the European point of view, the unique uncertainty of Britains exit from Europe, Italys fiscal problems and so on have made investors turn their attention to Treasury bonds, but in other areas the enthusiasm for bond purchases is not necessarily so high. It is worth emphasizing that the performance of hedging assets also depends on the attractiveness of future risky assets. Take the US stock market as an example, its value is about 150% of GDP, and it is one of the most important economic pillars of the US economy. Many other financial products are derived from the stock market. Once the credit system built on the stock market fluctuates, it will easily produce a chain reaction, which will significantly expand the risk, then hedging assets may be good for themselves. However, with the simultaneous emergence of the risk of global stock market crash and the rising uncertainty of Global trade situation, if the Fed changes its thinking mode in July and tilts toward the dove completely, abundant liquidity will re-support the stock market, and the investment logic will probably be rewritten. Source: Liable Editor of China Securities News: Yang Bin_NF4368

As a traditional hedge asset, bonds perform equally well. Since the end of July, the yields of overseas bond markets have fallen sharply. Especially the yields of European multinational bonds have reached a new low. As the locomotive of European economy, the yields of German major bonds have fallen below zero. From the European point of view, the unique uncertainty of Britains exit from Europe, Italys fiscal problems and so on have made investors turn their attention to Treasury bonds, but in other areas the enthusiasm for bond purchases is not necessarily so high.

It is worth emphasizing that the performance of hedging assets also depends on the attractiveness of future risky assets. Take the US stock market as an example, its value is about 150% of GDP, and it is one of the most important economic pillars of the US economy. Many other financial products are derived from the stock market. Once the credit system built on the stock market fluctuates, it will easily produce a chain reaction, which will significantly expand the risk, then hedging assets may be good for themselves. However, with the simultaneous emergence of the risk of global stock market crash and the rising uncertainty of Global trade situation, if the Fed changes its thinking mode in July and tilts toward the dove completely, abundant liquidity will re-support the stock market, and the investment logic will probably be rewritten.