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Author: Fan Zhijing
[ 过去一周，市场的焦点无疑被国会债务上限谈判的进程所吸引。随着6月1日潜在违约日临近，最终达成协议的曙光已经出现，美股也重新回到了近期交易区间的上轨，为新一轮突破行情做准备。道琼斯市场统计显示，板块上强者恒强，科技行业上周大涨4.2%，通信服务业和非必需消费品业分别以3.1%和2.6%的涨幅紧随其后，这也是今年以来表现最好的三大板块。 ]
The optimistic expectations of the U.S. Congress on the debt ceiling negotiations became the main driving force for the improvement of market risk appetite last week. The Nasdaq and the S&P 500 index set new highs for the year, and the VIX, a measure of market volatility, continued to hover at a low level.
Charles Schwab believes that investors need to take precautions against volatility in the coming week. On the one hand, the debt ceiling may trigger a sharp market reaction regardless of the outcome; Pricing, changes in interest rate expectations under low volatility may exacerbate market volatility.
The Fed’s stance is clouded
Judging from the data released in the past week, the pillar of the US economy – consumer spending is facing a double test from inflation and interest rate hikes. While auto consumption was strong, retail sales in April fell short of market expectations on a monthly basis, with sales in most major retail categories declining.
Some problems can also be found in the latest financial reports of retailers. Giants including Wal-Mart and Target are cautious about the short-term economic outlook, warning that the spending of American consumers may remain weak throughout the year, especially spending on non-essential consumer goods and expensive large-scale products will continue to decrease.
On the other hand, in the face of inflation that continues to erode purchasing power, many American households have to choose to borrow money for consumption, which may mean that future shopping choices will be further restricted during the interest rate hike cycle. New York Fed data showed credit card balances held steady at $986 billion in the first quarter, the first time in more than 20 years the data failed to fall between the fourth quarter and the next. At the same time, according to Bankrate data, the average interest rate on credit cards in the United States has just hit a record high of 20.33%, which makes the pressure on consumers to spend in debt unabated.
Bob Schwartz, a senior economist at Oxford Economics, said in an interview with China Business News that it is crucial for the economy that consumers are still opening their wallets, but this will gradually face the test of the follow-up effects of monetary policy . He said: “Price increases accounted for the main part of the increase in retail sales, and the headwinds to inflation may become more and more. Judging from the boom in online shopping, consumers are weighing more cost-effective options.”
The Federal Reserve is also evaluating the impact of monetary policy on the economy to determine the next path. Federal Reserve Chairman Powell said that it will take some time to reduce inflation, and the future faces uncertainties. Tight credit conditions may slow down economic growth, employment and inflation, and policy interest rates may not need to rise as much as in the past.
However, the hawkish voices of other members made a comeback, making the market’s pricing of interest rate hikes fluctuate. The yield on the two-year U.S. Treasury note, which is linked to interest rates, rose to 4.28%, its biggest weekly gain in nearly eight months, and the benchmark 10-year U.S. bond approached the 3.70% mark. Fed funds futures priced in a 25 basis point hike next month at one point above 35%. Bank of Montreal capital market strategist Ben Jeffery (Ben Jeffery) wrote in the report that the biggest challenge for the Federal Reserve this year is not just to release 25 basis points of interest rate hikes to reach the terminal interest rate, but how to firmly stand on not cutting interest rates within the year.
Schwartz told the first financial reporter that Powell’s attitude is cautious. They still have a month of economic data, including another consumer price index (CPI), inflation and employment report, before they need to decide whether to raise rates again. “It now looks more likely that the interest rate hike cycle has ended, because the impact of the banking turmoil on the credit standards of financial institutions is attracting attention.” He reiterated his previous view that the US economy will begin to experience a slight recession in the third quarter, But now is not the time to talk about rate cuts.
market volatility or intensification
Over the past week, the focus of the market has undoubtedly been attracted by the progress of the Congressional debt ceiling negotiations. As the potential default date on June 1 approaches, the dawn of an agreement has finally emerged, and US stocks have returned to the upper track of the recent trading range, preparing for a new round of breakthroughs. Dow Jones market statistics show that the strong sector in the sector is always strong. The technology industry rose 4.2% last week, followed by communication services and consumer discretionary industries with gains of 3.1% and 2.6%, respectively. This is also the best performance this year. of the three major sectors.
Many institutions believe that the expectation that the United States will eventually reach a debt ceiling agreement will provide positive news to the market. Art Hogan, chief market strategist at financial institution B Riley Wealth, said: “The progress made by the two parties in the debt ceiling negotiation process is positive, and the pause is not the end of the negotiation process, just a bump in the road. “
But Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, hopes investors will not be complacent. “We have been reminded that since 2011, it seems that Congress can only reach an agreement after a huge stock market shock. Looking back at history, when the debt ceiling negotiations frequently reached an impasse (ie 2011, 2015~2016, 2018), Market corrections range from 10% to 19%,” he said in a note.
In terms of capital flows, as of May 17, U.S. stock funds have experienced net outflows for eight consecutive weeks. Investors sold a cumulative net $7.64 billion during the period, up $2 billion from the previous quarter, according to Refinitiv Lipper data. Meanwhile, risk aversion led to fourth-week inflows into safer government bonds and money market funds, which totaled $975 million and $8.36 billion, respectively.
More catalysts are needed ahead, such as a debt-ceiling agreement, a easing of the regional banking crisis or a clear path for rate hikes by the Federal Reserve, to push stocks higher, analysts said. U.S. Treasury Secretary Yellen’s previous views on banking mergers and acquisitions have once again caused industry volatility. On the issue of interest rates, Goldman Sachs chief economist Jan Hatzius (Jan Hatzius) said: “The market is pricing too aggressively and cannot expect (federal) funds to Rates will be cut during the year. Because the economy continues to expand even as inflation subsides.”
Charles Schwab believes that investors need to be on guard against a new round of volatility. First of all, the progress of the debt ceiling negotiation cannot be predicted. Regardless of whether a substantial breakthrough or cancellation is finally achieved, the index will have a more violent reaction. Second, the latest PCE data, the Fed’s preferred inflation gauge, will influence how markets price in June policy. While the data does not necessarily give the full answer, in the current low volatility environment, the impact of interest rates on risk appetite will exacerbate market volatility.
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Editor in charge: Zhou Wei