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Less worries about stock trading

Just now, big news came!

This morning, the central bank conducted a 100 billion yuan MLF operation, with the interest rate unchanged at 2.5%. There was no net MLF injection for the fifth consecutive month. 103 billion yuan of MLF matured on Wednesday. Previously, there was no net MLF injection for four consecutive months.

Prior to this, although the market's attention to MLF has declined, the change of this interest rate still has a certain influence on the market. According to the latest article published by the Financial Times, the journal of the central bank, there is still room for interest rate cuts for the next trend of interest rates, but it also faces "double constraints" from both inside and outside.

At the same time, "Trump" began to affect the capital market. In the early trading today, virtual currencies rose sharply. Crude oil, gold, copper and other commodities all fell sharply, which seemed to be different from the market's prediction. So, what is the logic?

It is worth mentioning that before 10 am today, the transaction volume of CSI 500 and CSI 1000 exceeded that of last Friday. At the same time, the market started to strengthen from the weak performance in the early trading. This may mean that the bottom-supporting funds entered the market to protect the market.

Interest rate trends

How should interest rates go? The market does not seem to have much expectation. As expected, the central bank conducted a 7-day reverse repurchase operation of 129 billion yuan today, with a winning rate of 1.80%, the same as before. 2 billion yuan of reverse repurchases matured today.

According to the latest article in the Financial Times, industry insiders believe that, at present, guiding deposit rates downward can moderately slow the pace of narrowing banks' net interest margins, but it will also affect residents' consumption, and it is also necessary to guard against irregular behaviors such as "manual interest adjustments."

On the whole, further reduction of interest rates needs to balance the ability of banks to sustainably serve the real economy. In addition, in terms of exchange rate, due to the repeated market expectations of the Fed's interest rate cut, the US policy interest rate still remains high. Although the RMB exchange rate is the most resilient compared to the yen, won and major emerging market economies, which have generally depreciated by more than 5%, interest rate adjustments also need to consider the impact on the exchange rate.

Huatai Securities believes that the MLF-LPR mechanism may be weakened in the future, and LPR may be linked to financial market interest rates. Referring to overseas experience, the United States mainly plays a role through the three-tier mechanism of interest rate corridor → money market interest rate → real economy. The excess reserve rate serves as the upper limit of the federal funds rate, and the overnight reverse repurchase rate (ON RRP rate) serves as the lower limit of the federal funds rate. After the policy interest rate is transmitted to the money market interest rate, it is mainly transmitted to the entity through two channels: the financial market and the deposit and loan market. However, an important feature of the US financial system is that the direct financing market is relatively developed, with direct financing accounting for more than 70%, which makes the money market interest rate have a strong transmission effect on the broad spectrum interest rate. Referring to its experience, the future development of the direct financing market may serve as a supporting measure for interest rate marketization.

Recently, the central bank has paid a lot of attention to the management of expectations. Last weekend, the Financial Times, the media under the central bank, said that many experts interviewed said that the central bank’s announcement of borrowing and selling treasury bonds is a manifestation of maintaining the exchange rate and stabilizing expectations. Treasury bond trading is an organic part of the adjustment of the monetary policy framework, which is conducive to better play the role of the interest rate regulation mechanism. From the perspective of maintaining the exchange rate and stabilizing expectations, industry insiders explained that institutions’ scramble for treasury bonds is equivalent to the expectation that interest rates will become lower and lower in the future, and may enter a long-term low interest rate era like Japan. Basically, it is shorting the RMB and shorting the Chinese economy, increasing the pressure of capital outflow.

Judging from the market in the morning today, the Shanghai Composite Index opened 0.25% lower, and the Wind All A fell 0.26%. The new energy industry chain generally fell back, with CRO, duty-free, liquor, and cultural tourism sectors leading the decline. What is more interesting is that the dividend index began to fall continuously. However, the trend of the bond market also clearly exceeded market expectations, and treasury bond futures of all maturities strengthened across the board this morning.

Trump's impact on the market

On the other hand, Trump's influence on the market continues. This morning, virtual currencies continued to rise sharply, with Bitcoin returning to above $61,000, and virtual currencies such as Ethereum also rising sharply. But the commodity market is more worthy of attention.

Previously, some analysts pointed out that if the Republicans win by a large margin: US stocks, US bonds, gold, and copper will perform better before the election, and crude oil will perform better after the election, with the biggest difference between crude oil before and after the election. If the Republicans win by a narrow margin: US stocks, US bonds, crude oil, and copper will perform better before the election, and gold will perform better after the election, with the biggest difference between crude oil before and after the election. However, judging from today's market performance, if we use the above historical market conditions, it seems a bit empirical.

In today's early trading, commodities such as crude oil, gold, and copper all weakened, while the US dollar strengthened slightly.

So, what is the logic behind this? The market believes that the ceasefire between Russia and Ukraine and between Palestine and Israel will be conducive to the supply of commodities, and as risk appetite decreases, gold prices will also fall.

Huafu Securities believes that, reviewing the 2016 Trump deal 1.0, fundamentals dominated the market before the 2016 election. After Trump's victory, economic expectations improved, driving the US stock market to strengthen significantly: (1) The market before the US election was mainly driven by fundamentals: June-July employment data exceeded expectations + the second quarter report was not bad, and the US stock market continued to rise from June to August. After entering September, affected by the lower-than-expected PMI data from July to August, the US stock market continued to pull back, while the market had strong expectations for the Fed's interest rate hike, and US bonds were under pressure in the first half of 2016; (2) Trump's victory in November 2016 led to improved economic expectations: With the moderate expansion of the US economy and the market's good expectations for Trump's tax cuts and deregulation, the US stock market continued to rise, and US bonds were constrained by the Fed's interest rate hike cycle and performed poorly overall. Driven by risk aversion, the US dollar rose significantly in the three months before and after the election, but continued to decline after 2017.

It is worth mentioning that there was also a magical scene in the A-share market in the morning trading today. Sichuan University Zhisheng's bidding once reached the daily limit, and Goertek also performed well in the morning bidding.

Source: China Securities

Statement: All information content of Databao does not constitute investment advice. The stock market is risky and investment should be cautious.

Editor: He Yu

Proofreading: Yang Lilin

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