The global market under the smoke of gunpowder: those certain and uncertain

Reporter Ouyang Xiaohong once again resonated with the global market at the same frequency. Stock markets at home and abroad have exploded across the board, and bulls have raised their voices; even though the Federal Reserve's September inflation data was higher than expected, and the International Monetary Fund (IMF) predicted that one-third of the world economy may shrink this year or next.

This time, it took only two days for A shares to recover the 3,000-point mark, and the last time was 4 days. On the evening of October 11, the second day after A-shares fell below 3,000 points, the People's Bank of China released comprehensively improved September financial data overnight, which is undoubtedly good for A-shares.

In extraordinary times, the global market "shudders" under the smoke of gunpowder. During the 11th holiday, overseas market conditions can be described as a super "roller coaster"; A-shares after the holiday did not usher in a "good start", but the market situation after the adjustment was getting better day by day.

Due to the superimposed influence of various unfavorable factors, the global economic recession may be gradually approaching; the recognition of the 2022 Nobel Prize in Economics for "research contributions to banking and financial crises" seems to warn the market to prevent crises.

In addition to the wealth of wealth (foreign exchange reserves), the fundamentals of the economy must also be sound, so that A shares can be stable and far-reaching. Credit expansion and improved credit structure in September provided a certainty - helping China's economic recovery.

The market fluctuates violently

On October 14, the three major A-share stock indexes rose sharply across the board. The Shanghai Index, Shenzhen Component Index and ChiNext Index closed at 3071.99 (+1.84%), 11121.72 (+2.81%), 2434.22 (+3.55%); 4512 individual stocks Up, down 367; daily limit 110, down limit 3; northbound funds bought 7.472 billion net, with a total turnover of 860.8 billion, an increase of 132.5 billion over the previous day; the market sentiment in the broader market has reached a boiling point, and confidence is gradually recovering.

In terms of sectors, medical equipment, medical services, and power equipment were among the top gainers; the main net inflows of the broader market into power equipment, medical equipment, and medical services were 6.651 billion, 2.389 billion, and 1.938 billion, respectively.

In intraday trading, the U.S. dollar index was at 112.67, the euro against the U.S. dollar was 0.9763, and the offshore renminbi (CNH) was 7.18 against the U.S. dollar.

According to the data of flush flush, on the 13th, 3,207 stocks rose and 1,548 stocks fell; the net outflow of northbound funds was 8.035 billion; the turnover of the two cities was 728.339 billion. On the previous trading day, there were 4,541 rising stocks and 369 falling stocks; the net outflow of northbound funds was 5.867 billion; the turnover of the two cities was 710.217 billion. It is worth noting that at 13:09 on the same day (12th), the broader market was pulled up by a mysterious force, and thousands of individual stocks rose instantly; the three major indexes that opened low and moved high that day showed a V-shaped violent reversal trend.

The previous trading day (October 13) before the resumption of the peripheral market was also dominated by bulls; European and American stock markets generally rose. US stocks Dow, Nasdaq and S&P 500 closed at 30038.72 (+2.83%), 10649.15 (+2.23%) and 3669.91 (+2.60%) respectively.

"U.S. stocks sold off after the (September U.S. inflation) data (Oct. 13 local time), but turned around and rose sharply later in the day - unlikely due to a rise in consumer prices. Reconsidering, it is more related to short-covering and buying plans." Zhao Yaoting, global market strategist at Invesco Asia Pacific (excluding Japan) believes.

In his view, the higher-than-expected rise in U.S. core prices means that the Federal Open Market Committee is expected to raise interest rates by 75 basis points at its November meeting, and it may also mean that the Fed may continue to raise interest rates at this pace in December and beyond. . Inflation is expected to fall sharply from a year earlier by the middle of next year. This generally creates a good environment for equities and credit, but there may be more downside before that.

For example, the unexpected escalation of war and non-war gunpowder once caused Hong Kong and US stocks to experience a super roller coaster during the November holiday, but the overall increase was still not small; the market views are mostly optimistic about the trend of A shares after the holiday. Unexpectedly, on October 10, A shares fell below 3000 points, the Shanghai index closed at 2974.15 (-1.66%), the Shenzhen Component Index and the ChiNext Index both fell by more than 2.3%, with a total turnover of 628 billion.

European and American stock markets also fell across the board, but the Nasdaq closed at 10542.10 (-1.045%), other indices did not drop more than 0.8%. The U.S. dollar index was at 113.1, the euro was at 0.9704 against the dollar, and the offshore yuan (CNH) was at 7.1551 against the dollar.

On this day, multiple explosions occurred in the center of the Ukrainian capital Kyiv. The city's emergency services said there were reports of casualties.

Two days ago, an explosion destroyed part of the Kerch Bridge in Russia. Russia said the Kerch Bridge explosion was a "terrorist attack" by Ukraine; two days later, it retaliated with missile attacks on major Ukrainian urban areas, including the capital Kyiv. On the same day, the Russian RTS index closed at 963.88 (-4.10%), continuing to fall sharply.

The full toll of casualties from the attack is not known, but Ukraine's State Emergency Service said at least 11 people were killed and 89 injured. In addition to casualties, the attack also damaged important parts of Ukraine's energy grid, foreign media reported, prompting the country's energy ministry to announce a halt to electricity exports to the European Union starting on Tuesday (October 11).

United Nations Secretary-General Antonio Guterres was "appalled" by the attacks, which he said through a spokesman represented an escalation of the war.

The next day, A-shares stabilized and rebounded. The Shanghai Index, Shenzhen Component Index and ChiNext Index closed at 2979.79 (+0.19%), 10577.81 (0.53%) and 2261.89 (+1.15%) respectively, with a turnover of 563.8 billion.

During the intraday session, the US dollar index was at 113.20, the euro against the US dollar was at 0.9706, CNH and CNY (onshore RMB) were at 7.1883 to 7.1816, respectively, and the central parity rate of the RMB was at 7.1075; but CNH fell to 7.2 at one point.

The yield on the 10-year U.S. Treasury note, which can be called the "anchor of global asset pricing", was at 3.951 (+1.58%), but it once again rose above 4% during the session; the yield on the U.S. 2-year Treasury bond was at 4.325 (+0.29%). Earlier, on September 28, the yield on the 10-year U.S. Treasury note jumped to 4%, the highest since April 2010.

The soaring US 10-year Treasury yields not only push up market financing costs, but also show that US inflation continues to be high, and the Fed's hawkish stance (it may raise interest rates again by 75 basis points in November) will also trigger a series of chain reactions in the financial market. .

Uncertainty Challenge

Not only the unexpected escalation of the war + the new ban on chips in the United States, and the large-scale recurrence of the epidemic in autumn and winter; the shock wave of interest rates is also engulfing global assets - as the Federal Reserve and other major central banks raise interest rates to deal with soaring inflation, people are increasingly worried about a recession.

On Oct. 10, JPMorgan Chase CEO Jamie Dimon warned that a "very, very serious" combination of headwinds could tip the U.S. and global economies into recession by the middle of next year.

Ten days ago, according to the operating model of investment research institution Ned Davis Research, the probability of global economic recession is 98.1%. Such a high probability of recession has only occurred in early 2020 and the financial crisis in 2008-2009.

"In addition to the direct inhibition of financial asset returns, the Fed's continued tightening policy will also lead to increased recession risks." Zhao Yaoting believes.

In his view, short-term bond yields will be pushed higher by a rise in policy rates, while longer-term bond yields will be weighed down by the deteriorating economic outlook. Therefore, the yield curve is expected to flatten/invert further.

From the perspective of economic impact, Zhao Yaoting said that real income has been significantly squeezed. U.S. consumer spending is expected to moderate in the second half of 2022. The U.S. economy is already in a technical recession (GDP is negative for the first two quarters of 2022), which could prolong the recession. ?

Founder's mid-term futures research report pointed out that the September PMI data of the world and various economies further corroborated the expectation of a global economic recession, especially the manufacturing industry. The global manufacturing PMI recorded 49.8 in September, falling below the line of prosperity and decline for the first time since July 2020. Under the pressure of the global economic downturn, the consumption capacity and consumer confidence of people in various countries continue to decline, and the consumption of physical goods continues to weaken, which is transmitted to the reduction of manufacturing demand.

In early October, the rumors of bankruptcy of a century-old investment bank (Credit Suisse) and the "roller coaster" market conditions in the global financial market have added to a lot of uncertainty. On October 7, local time, Credit Suisse announced that it will repurchase OpCo senior debt securities of up to approximately CHF 3 billion.

Will this save it from bankruptcy? Credit Suisse's loss and a slump in share prices still appear to be deeply unsettling for the market.

On October 10, the Royal Swedish Academy of Sciences in Stockholm announced that the 2022 Nobel Prize in Economics will be awarded to three American economists, including former Federal Reserve Chairman Bernanke, Douglas W. Diamond and Philip H. Davig, in recognition of them A study of banking and financial crises. The Nobel committee said the trio's research showed "why avoiding bank failures is crucial".

Bernanke is a self-proclaimed Depression-obsessed. Fortunately, when Bernanke was chairman of the Federal Reserve during the 2007-2009 global financial crisis, he had the opportunity to try to combine knowledge and action, combining theory with reality at the time. . In his book "The Courage to Act", he wrote that the Fed was born after the less familiar "panic of 1907", and the first major test it encountered was the crisis of the 1930s. Back then, the Fed failed...and the result was a global Great Depression. 75 years later, in the crisis and aftermath of 2007-2009, the same problem was encountered. This time, we acted.

However, it is an undeniable fact that Bernanke failed to prevent the crisis from unfolding, even though his research provided a rationale for dealing with the global financial crisis. Moreover, the market believes that the resulting era of strict bank regulation and ultra-low interest rates has contributed to the risks in financial markets - and what is more, they are only now slowly emerging. There are also scholars who point to the source of the current spread of global inflation to a large number of water releases and excessive currency issuance; or to show that the reasons for this are not without entanglements.

If you don’t consider the big water release when the epidemic broke out in 2020, will the Fed, which has misjudged inflation expectations before, face a third crisis? Since March 2022, in order to fight inflation, the Federal Reserve has aggressively raised interest rates, and has raised interest rates by 300 basis points.

Against the background of high debt leverage and high inflation, the Federal Reserve, including the central banks of various countries, may raise the risk of a sharp increase in interest rates or lead to economic recession and market collapse, which has also been criticized by the market.

After winning the award, Bernanke said that even if the financial problem doesn't start to become an important event, it worsens the financial environment over time, it can exacerbate the problem, it can exacerbate the problem, so I think this is something that we have to pay close attention to. He said the current U.S. economy bears no resemblance to the pre-2008 crisis, and the banking sector as a whole is in better shape than it was during the 2008 crisis.

It is true that after 2008, all countries have strengthened functional supervision; banks have changed from prudential supervision to macro-prudential supervision to maintain financial stability. Financial institutions are well-capitalized under the resulting strict regulatory framework. It seems that the decline in collateral values ​​and lender bankruptcies during the Great Recession of the last century and the 2008 financial crisis do not occur today. But the government bond market remains under pressure.

Next, if the Fed's benchmark interest rate exceeds 5%, most of the funds may be invested in fixed income products? Unless the oversold stock market value stands out - the dividend yield exceeds the benchmark interest rate. It can be seen that the global financial macro situation is becoming increasingly severe.

restore confidence

Now, with the superposition of "inflation + Fed tightening + war + epidemic + energy crisis + climate risk", the global currency war triggered by the strong dollar is intensifying.

In reality, the central banks of various countries have directly or indirectly turned on the early warning mode in different ways.

And the recognition of the 2022 Nobel Prize in Economics for "research contributions to banking and financial crises" also seems to remind us how to face crises; because their research findings have improved the way society responds to financial crises.

At this time, it is not only the exchange rate of non-US currencies that needs to be stabilized, but also the foreign exchange reserves that are regarded as a country's bottom line and strength and can withstand storms. According to the International Monetary Fund (IMF) recently released data on global foreign exchange reserves as of the end of June this year (CCOFER), global foreign exchange reserves have decreased significantly. As of the end of June this year, the balance of global foreign exchange reserves was US$12,036.8 billion, a decrease of US$883.8 billion from the end of the previous year.

Guan Tao, global chief economist of BOC Securities, analyzed that the negative valuation effect caused by exchange rate depreciation is the main reason for the decrease in the value of the US dollar in the global foreign exchange reserve balance of sterling, Japanese yen, euro, Canadian dollar, Australian dollar and RMB.

Guan Tao said that the combined analysis of the IMF's CCOFER and the US Treasury's International Capital Flows Report (TIC) data shows that as of the end of June this year, foreign official investors held a balance of US Treasury bonds of 3.9026 trillion US dollars, equivalent to the global US dollar foreign exchange in the same period. The reserve balance accounted for 58.7%, down 0.5 percentage points from the end of March, far below the level of about 80% to 90% in 2014 and 2015, and the lowest since data began.

"This shows that it is difficult to accurately judge the changes in the balance of global US dollar foreign exchange reserves by only using foreign official investors to hold changes in the balance of US debt, because foreign official investors may allocate both US debt and other US dollar securities assets such as the government. Institutional bonds, corporate bonds and even listed company stocks," Guan Tao said.

In fact, in addition to a solid family background, the economic fundamentals must be intact, and A-shares can be stable and far-reaching.

On October 11, according to financial data released by the People's Bank of China, credit expansion accelerated significantly in September and the structure improved significantly.

Wen Bin, chief economist of China Minsheng Bank, commented that M2 in September increased by 12.1% year-on-year, 0.1 percentage points lower than that at the end of last month and 3.8 percentage points higher than the same period last year, and market liquidity continued to remain reasonably sufficient. New credit expanded significantly in September, and both increased significantly year-on-year, and the credit structure improved significantly. With interest rate cuts, tax cuts and further policies on both supply and demand sides of the real estate market, market confidence has been gradually restored, and real estate sales have improved marginally, boosting the demand for residential mortgage loans. Residents' medium and long-term loans increased by 345.6 billion yuan, the highest level since the third quarter. In September, the scale of social financing increased by 3.53 trillion yuan, an increase of 624.5 billion yuan year-on-year, and continued to rebound significantly.

It can be seen from the financial data that the effective demand for credit from enterprises and the residential sector has continued to recover, and the credit liberalization has been further accelerated as the policy of stabilizing growth continues to increase and accelerate the implementation.

"Combining with the fourth quarter work promotion meeting to stabilize the economy and various policy deployments, the credit expansion in infrastructure, manufacturing, real estate and other fields is expected to continue to form a strong support for the growth of credit and social financing in the fourth quarter, which will help the economic operation to remain stable. Reasonable range." Wen Bin said.

Another good news is the strong rise of new energy vehicles, and China's auto exports have jumped to the second place in the world. According to data from the China Automobile Association, in August 2022, China's automobile exports reached 308,000 vehicles, a year-on-year increase of 65%; it can be said that it exceeded 300,000 vehicles for the first time in history.

Then, when the "smoke of war" is spreading all over the world, under the interweaving of long and short news, can the RMB exchange rate, which has been depreciating rapidly recently, stabilize and recover?

CNH and CNY once fell below the 7.24 mark on September 28, and on October 11, CNH touched 7.20 again. In this regard, the People's Bank of China issued a document pointing out that from the trend in recent years, there is no one-to-one correspondence between the bilateral exchange rate of the RMB against the U.S. dollar and the U.S. dollar index. Market supply and demand always play a decisive role, and the foreign exchange market has the ability to achieve self-balancing. He also said that under the market-oriented exchange rate formation mechanism, the point of the exchange rate is uncertain, two-way fluctuations are the norm, and there will be no "unilateral market".

The central bank also pointed out that the next step will be comprehensive measures to stabilize expectations, resolutely curb the exchange rate fluctuations, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

It is true that the global market once "shuddered" under the smoke of gunpowder. In addition, affected by the external markets and the repeated epidemics in autumn and winter, A shares were also affected and fell below the 3,000-point mark, but recovered 3,000 points two days later, and the market sentiment was high; But when will market confidence really recover? At the same time, investors should also be aware that if the bullish power continues to explode and the market sentiment is at the boiling point, the market may also adjust.

According to relevant statistics, from the perspective of historical data, looking back at the previous 48 times from falling below 3000 points to recovering 3000 points: only 2 times to recover 3000 points took more than 1 year, and the other 46 times were within 1 year. Thirty times, 3000 points were recovered within 10 days, and 9 times it took only 1 day. The average time to recover 3000 points was 62 days, and the median time was 6 days. The last time it fell below 3000 was on April 25, 2022, and it took only 4 days to get back to 3000.

The longest one was from April 25, 2011 to December 8, 2014, which took 1323 days, nearly 3 years and 8 months.

This time, A shares returned to 3,000 in just 2 days, and the bulls are currently strong. The credit expansion and improvement in credit structure in September also provided a certainty - helping China's economic recovery. In fact, since the end of August, the turnover of the A-share market has been shrinking; recently, the trading sentiment has picked up, and the turnover has continued to rise.

"If the trading volume continues to increase in volume, the improvement in micro-liquidity will bring about market recovery." Huaan Securities believes, "No matter what kind of market is dominated by the dominant style, during the period when the trading volume is increasing, the probability of growth will be the greatest; unless The market is in a bear market background, and growth is not dominant."