China-Singapore Jingwei, September 19 (Zheng Zheng, Fu Jianqing) The Federal Reserve announced an interest rate cut, which is the first rate cut in more than four years.
The dust has settled on interest rate cuts
On the 18th local time, the Federal Reserve announced a sharp interest rate cut of 50 basis points, lowering the target range of the federal funds rate to 4.75%-5%.
After the decision was announced, U.S. stocks rose in a straight line, spot gold rose nearly $20 in the short term, and the U.S. dollar index fell 40 points.
The Fed's dot plot shows that the median federal funds rate expectation at the end of 2024 is 4.4%, compared to 5.1% previously. Of the 19 officials, 2 believe that interest rate cuts should not continue in 2024 after this meeting; Seven believe another 25 basis point rate cut, nine believe another 50 basis point cut, and one believes another 75 basis point cut.
Dot plot Source: Federal Reserve official website
The Federal Open Market Committee statement issued by the Federal Reserve said recent indicators point to a continued steady expansion in economic activity. Job growth has slowed and the unemployment rate has risen, but remains low. Inflation has made new progress towards the 2% target, but remains at a high level. In considering further adjustments to the target range for the federal funds rate, the Committee will carefully assess the latest data, the evolving outlook, and the balance of risks.
Previous data showed that United States non-farm payrolls increased by 142,000 in August, with new jobs better than the previous value and lower than expected; the unemployment rate ended a four-year streak of increases, falling slightly to 4.2%.
United States trend of cooling inflation continues. The United States Bureau of Labor Statistics released data showing that the CPI rose 2.5% year-on-year in August, in line with expectations, down 0.4 percentage points from the previous value, slowing for the fifth consecutive month and the lowest level since February 2021. Core CPI rose 3.2% year-on-year in August, unchanged from expectations and the previous value, after slowing down for four consecutive months, rising 0.3% month-on-month, slightly higher than the expected and previous value of 0.2%, the largest increase in four months.
What will be the impact of the rate cut? According to the United States Consumer News and Business Channel (CNBC), Richard Carter, head of fixed rate research at Quilter Cheviot, said that as an important driver of global economic growth, this will inevitably have an impact on global asset prices, including gold. Gold prices hit record highs this week in anticipation of action from the Federal Reserve. He explained that rising interest rates would weigh on gold as they would make fixed-income investments such as bonds more attractive; Oil and other commodities that are typically denominated in dollars tend to be boosted by interest rate cuts, as lower borrowing costs can stimulate the economy and increase demand.
Shen Wan Hongyuan analyzed that there is a time lag in the transmission of monetary policy to the real economy, and the sensitivity of the real economy to interest rates has declined for a long time, so it is not believed that the interest rate cut in September can immediately reverse the weakening trend of the United States economy. However, according to quantitative calculations, after the Fed cuts interest rates, interest-sensitive household consumption, residential sales, and fixed asset investment have all boosted the effect.
How does it affect A-shares?
How does the United States interest rate cut affect A-shares? Haitong Securities said that the Federal Reserve's preventive interest rate cut may help improve the liquidity of A-shares, and pay attention to the verification of fundamental repair in the medium and long term. From the perspective of liquidity, the Fed's interest rate cut may improve the macro and micro liquidity of A-shares in the short and medium term, helping A-shares to rise. From a fundamental point of view, the medium- and long-term trend of A-shares is related to fundamentals, and it remains to be seen how interest rate cuts will boost the fundamentals of A-shares.
From the perspective of industries, in the short term, the financial industry, which directly benefits from the improvement of macro liquidity, is the first to outperform, while the consumer industries such as food and beverage, beauty care and other consumer industries preferred by foreign investors have always been at the top; In the medium term, the social service and power equipment industries are gradually outperforming, and the interest rate-sensitive electronics, computer and other technology industries are gradually dominating. Looking ahead, Haitong Securities believes that China's advantageous manufacturing, which has better fundamentals, is expected to become the main line of A-shares in the medium term.
According to the analysis of Bank of China Securities, combined with historical experience, after the first landing, overseas risk assets may have fluctuations caused by periodic recession transactions, and it is necessary to focus on the changes in global asset performance and market style after domestic policies and the Federal Reserve's interest rate cut in the next two weeks.
CITIC Securities believes that the mainland's export growth in the fourth quarter may be under pressure, which may lead to a more prominent problem of insufficient demand, and the export trend next year will depend on when to stabilize economic fundamentals and whether the United States can cut interest rates.
What is the direction of China's monetary policy?
In addition to the Federal Reserve, a number of central banks have recently announced interest rate cuts, and global monetary policy has gradually turned accommodative. In early August, the Bank of United Kingdom cut its benchmark interest rate by 25 basis points to 5%; On September 4, the Bank of Canada announced a 25bp cut in its benchmark interest rate to 4.25%; The European Central Bank announced a second interest rate cut on September 12; On 18 September, Bank Indonesia cut its key interest rate by 25bp to 6%, with an estimate of 6.25%.
What is the follow-up monetary policy of the People's Bank of China?
On September 5, the State Council New Office held a series of press conferences on the theme of "promoting high-quality development", and Zou Lan, director of the Monetary Policy Department of the People's Bank of China, said that policy adjustments such as RRR and interest rate cuts still need to observe economic trends. The effect of the RRR cut at the beginning of the year is still emerging, and the average statutory reserve ratio of financial institutions is about 7%, and there is still some room for it. Affected by factors such as the speed of diversion of bank deposits to asset management products and the narrowing of banks' net interest margins, the further decline in deposit and loan interest rates still faces certain constraints.
CICC pointed out that in the short term, the probability of a RRR cut in the "incremental policy" option is greater than that of an interest rate cut. In August, the growth rate of social finance fell slightly, and the growth rate of non-government social finance declined faster, and government bonds were the main factor supporting social finance. The issuance of government bonds has increased, but fiscal deposits have rebounded significantly, and the fiscal is still recovering liquidity in August, which is a drag on M2, and the actual effect of fiscal expansion has not yet been reflected, and the follow-up investment remains to be seen.
CITIC Securities expects that in the domestic aspect, the probability of steady growth policy increase is increasing, and there is room for monetary policy to cut the reserve requirement ratio by 25bps, and the second half of the fourth quarter may continue to reduce the 7-day reverse repo rate by 10bps, and in terms of fiscal policy, special bonds may be further accelerated. (Sino-Singapore Jingwei APP)
(The views in the article are for reference only and do not constitute investment advice, investment is risky, and you need to be cautious when entering the market.) )
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