Yellen will be new Treasury Secretary of the United States, three major problems to be solved, and new impetus for US stocks?

category:Finance
 Yellen will be new Treasury Secretary of the United States, three major problems to be solved, and new impetus for US stocks?


Yellen has been calling for more fiscal stimulus to ease the economic recession caused by the epidemic blockade and reduce inequality. She believes that Congress and the White House should be more active in spending to maintain the integrity of families and businesses through funding, especially aid to state and local governments.

When unemployment is abnormally high and inflation is historically low, the economy needs more fiscal spending to support recruitment, she and Jared Bernstein, chief economist of Bidens team, wrote on August 24

Vincent Reinhart, the chief economist of Mellon investment management in New York and former economist of the Federal Reserve, spoke highly of Yellens post in an interview with first finance reporter: Yellen used to be the chairman of the Federal Reserve, bank president, chairman of the Economic Advisory Committee, etc., and she is very familiar with this responsibility. As a thoughtful economist specializing in the labor market and stimulus, Yellen has also been involved in all the key monetary policy decisions of the past 25 years.

But Reinhardt also said that in order to succeed in the post of U.S. Treasury Secretary, Yellen had to adjust, because her new job is different from her previous job in some aspects..

At the end of the day, it is the president who calls for every issue, and it is the responsibility of the Treasury Secretary to advance the presidents call in the complex political system of the United States. As a result, Yellen has to work in the corridors of Capitol Hill, first of all with the support of the house of Representatives and the Senate. Its a tough task for the new finance minister, but its crucial if you want to succeed.

Wang Xinjie, chief investment strategist of China wealth management department of Standard Chartered Bank (China) Co., Ltd., also told the first finance reporter that the news that Yellen will become the new Treasury Secretary has rekindled the markets hope that the United States will launch a fiscal stimulus plan in early 2021, thus boosting market sentiment.

However, analysts also believe that there are still variables in whether the fiscal expenditure can be finally passed, and even if the fiscal expenditure does increase, the impact is worthy of attention.

During the lame duck period of the U.S. governments power transfer, it may be difficult for fiscal policy to be passed, and the time for final adoption may still wait until the next president takes office.

Chen Dalong, a U.S. stock trader of Castle hedge fund in New York, also told the first financial reporter that the current treasury secretary, Mr. mnuchin, transferred $455 billion into the Treasury Fund, which not only means that after taking office, Yellen will need the approval of Congress before using the unused funds of the Federal Reserves anti epidemic emergency loan tool, but also makes the available amount of foreign exchange stabilization fund of the Ministry of Finance after Yellen takes office Less than $80 billion. .

Easing the relationship between the Federal Reserve and the Treasury?

In view of novel coronavirus pneumonia, Yellens position is also hoped that after Yellen took office, the United States will repair the relationship between the Federal Reserve and the Treasury, making the United States more coordinated in its fiscal and monetary policies in coping with the new crown pneumonia epidemic.

The relationship between the Treasury and the Fed has been damaged. Winthin, chief currency analyst at Brown Brothers Harriman, said Yellen had worked closely with current Fed chairman Powell and could help repair the relationship between the Treasury and the Fed and promote coordination between them..

Previously, in response to the epidemic, the U.S. Treasury Department and the Federal Reserve used funds provided by the new coronavirus assistance, relief, and economic security act to support markets ranging from corporate bonds to municipal bonds, preventing a full-scale financial crisis. But recently, the Treasury and the Fed have faced sharp disagreements over the maturity of liquidity instruments.

Both Yellen and Powell advocate continued strong support for the economy, which will eliminate the recent friction between the current treasury secretary, Mr. mnuchin, and the fed over the extension of the Feds lending program, ed mills, an analyst at Raymond James, a Wall Street investment bank, said in a research paper released this week

In her political career, she refuted the view that fiscal deficit would inevitably lead to high inflation, and agreed with the combination of loose fiscal policy and monetary policy. Yellen is also an active supporter of quantitative easing (QE). As a result, the market expects Yellen to work well with the Fed..

What is the impact on various asset classes?

Based on the above two general expectations, the market was jubilant after the news that Yellen was likely to become the new finance minister. The next day, the Dow Jones Industrial Average broke through 30000 points for the first time in history, and financial stocks also reached a new high.

Looking to the future, as the epidemic and political uncertainties gradually subside, Citigroup will continue to over allocate stocks and underwrite bonds. Wu Jingjing said, loose policies and the listing of vaccines will benefit the economy, accelerate the recovery and restore the confidence of enterprises and consumers. Yellen may introduce faster policies to ensure that the goal of full employment is achieved, which is also good for financial markets.

With the economic restart, U.S. stocks are expected to have room to rise by the end of next year, with cyclical stocks expected to catch up with defensive ones, while medium and small cap stocks may have better growth space than large cap stocks, she said.

Although Chen Dalong also agreed with the view that Yellens assumption of office would be beneficial to US stocks, he stressed to the first financial reporter that the market may have overlooked the risk of a short-term market retreat after taking office.

He said the U.S. Treasury has always played an important role in supervising and supervising banks. During her tenure at the Federal Reserve, Yellen conducted bank stress tests and imposed mandatory measures on Wells Fargo. Also in his term of office, he started the cycle of reducing and increasing interest rates on the Feds balance sheet.

That is to say, although Yellen is a moderate, she also emphasizes the importance of regulation. When she introduces the stimulus plan, she will also strengthen the monitoring of the market, which is not conducive to the capital market. Regulatory measures on the market may indeed restrain the rise of US stocks in the short term, but in the long run, it will create a relatively stable market environment, Chen said Based on this, he believes that it is difficult to generalize the financial impact of Yellens assumption of office on US stocks. As the market is overreacting to this news, there may be a short-term pullback at that time. Wang Xinjie said that a new round of fiscal stimulus is expected to push up bond yields, but considering the commitment of the Federal Reserve and the policy framework of its average inflation target, the Federal Reserve will eventually step in to limit the rise in yields. Therefore, compared with US government bonds, we continue to be optimistic about credit bonds, especially US dollar bonds in emerging markets, US dollar bonds in Asia and high-yield bonds in developed markets, as credit bonds are expected to be the largest ultimate beneficiary of the Feds restrictions on yield increases. He said. Source of this article: Yang Bin, editor in charge of the first finance and Economics_ NF4368

That is to say, although Yellen is a moderate, she also emphasizes the importance of regulation. When she introduces the stimulus plan, she will also strengthen the monitoring of the market, which is not conducive to the capital market. Regulatory measures on the market may indeed restrain the rise of US stocks in the short term, but in the long run, it will create a relatively stable market environment, Chen said

Based on this, he believes that it is difficult to generalize the financial impact of Yellens assumption of office on US stocks. As the market is overreacting to this news, there may be a short-term pullback at that time.

Wang Xinjie said that a new round of fiscal stimulus is expected to push up bond yields, but considering the commitment of the Federal Reserve and the policy framework of its average inflation target, the Federal Reserve will eventually step in to limit the rise in yields.

Therefore, compared with US government bonds, we continue to be optimistic about credit bonds, especially US dollar bonds in emerging markets, US dollar bonds in Asia and high-yield bonds in developed markets, as credit bonds are expected to be the largest ultimate beneficiary of the Feds restrictions on yield increases. He said.