This article is from the WeChat public account: Jintai Capital Group (ID: jtzbz1) , of: text of the new button, the subject map from: IC photo
It stands to reason that the interest rate cut should wait until the Fed ’s interest rate meeting in mid-March. March 3rd, US Eastern Time (Tuesday) At 10:27 am, the Fed unexpectedly announced a 50 interest rate cut during the morning trading session of the stock market. base point.
This is Powell’s decision? of course not. In a statement following the rate cut, the Fed stated that the rate cut was unanimously agreed by the Federal Open Market Committee (FOMC) , and members agreed that in the future Economic development and its impact on the economic outlook will be closely monitored and relevant tools will be used to take appropriate action to support the economy.
As soon as the news came out, the three major US stock indexes suddenly jumped from the low to the low trend, and the gains exceeded 0.5%, but the gain lasted only 15 minutes and then fell back. The Dow Jones Index finally closed at 25917.41 points, a decrease from the previous day 785.91 points, a decrease of 2.94%.
Theoretically, a 50 basis point cut in interest rates is already very strong, but can it stimulate the stock market to stop falling or return to the path of rising? It’s hard to say. The more objective estimate is that if strong interest rate cuts continue, it should at least delay the decline of the stock market or make the stock market adjustment more normal.
The epidemic shakes developed countries
A few hours before the Fed announced a rate cut, US Treasury Secretary Smnuchin and Fed Chairman Powell co-chaired a conference call. On the phone, two U.S. financial leaders talked about economic war “The G7 issue met with G7 finance ministers and central bank governors. After the event, G7 issued a joint statement that while strengthening and working to expand health service inputs, G7 finance ministers will be ready to take action, including when appropriate. Fiscal measures to help counter the negative impact of the epidemic on the economy and support the economy at this stage.
But how do countries work together? What actions will be taken? G7 did not disclose details. Looking at it now, the Fed took the lead among G7 members, cutting interest rates by 50 basis points, and lowering the federal benchmark interest rate to between 1% and 1.25%.
The Fed explained in a statement that the risks posed by the new crown pneumonia epidemic to economic activity are constantly evolving. It is precisely in view of such risks, and in order to maximize employment and stabilize prices, the Federal Open Market Committee decided to start today The federal funds rate target range was reduced by 0.5 percentage points.
Did the rate cut appear too hasty? In fact, US President Trump has long been impatient. He previously called the Federal Reserve twice, calling for a sharp cut in interest rates. Just hours before the rate cut, Trump was still saying that higher borrowing costs made life difficult for US exporters and put the US economy at a disadvantage. Earlier on March 2, Trump slammed Fed Chairman Powell directly on Twitter, saying that one of them was “unresponsive” as always.
The United States is not the first country to cut interest rates. Australia earlier announced a 25 basis point reduction in cash interest rates to 0.5%, a record low for the country ’s interest rate. The RBA Governor said that the outbreak of the new overseas crown pneumonia epidemic is having a significant impact on the country ’s economy, and Easing monetary policy will provide more support for employment and economic activities.
Malaysia also cut interest rates. The country’s central bank has cut interest rates twice in a row this year, and the current overnight interest rate has dropped to 2.5%. The Bank of Malaysia said that due to the outbreak of the new crown pneumonia epidemic, the country ’s tourism and manufacturing industries were severely hit in the first quarter, which severely threatened economic growth. Growth expectations improved. In addition, in order to boost the economy, the Malaysian government has also introduced a 20 billion ringgit (about 4.8 billion U.S. dollars) fiscal stimulus package, focusing on responding Impact of the epidemic.
Behind the American rapid rate cuts
BeautyWill Europe and Japan follow after the country cuts interest rates? Of course, after all, the G7 meeting has reached a consensus action plan. But will the same rate cuts be taken? I’m afraid not. At present, Europe and Japan’s “negative interest rate” policies have been implemented for many years. Can there be room for further rate cuts? Still meaningful? The news is that the European Central Bank is studying and formulating policies to avoid global public health events from impacting corporate liquidity. A possible policy in Europe is for the central bank to increase the amount of asset purchases on the basis of an asset purchase plan of 20 billion euros per month.
However, there are obstacles to this approach, such as The proportion of debt held by a single institution held by the European Central Bank is close to the upper limit. To further increase the necessary legal process, Europe and Japan follow up with the United States The interest rate cut cannot be made “on the fly”.
Will the new crown pneumonia epidemic weigh heavily on the global economy? It is unclear now, but the global development of the epidemic has caused widespread concern in the market. Especially in recent times, the number of confirmed cases outside China has risen rapidly, and the frequent occurrence of “primitive cases” has added a major “uncertainty” factor to the global economy.
The world is debating whether this epidemic can evolve into a “pandemic,” but WHO’s (WHO) Take a negative attitude. The official WHO microblog post said that if the evidence can confirm, WHO will not hesitate to declare it a pandemic.
But now, 90% of the reported cases in the world are concentrated in China, and the vast majority only occur in one province; of the reported cases outside China, 81% come from 4 countries, and 38 of the other 57 countries and regions report The number of cases is less than 10 cases, while only 1 case in 19 countries and regions. At present, no cases have been detected in more than 130 countries and regions around the world, and many countries and regions have also controlled the virus, and there have been no new cases in the past two weeks.
It is too early to tell if the epidemic will be a global pandemic. So why is the US rushing to cut rates? I’m afraid there is another secret behind this. The author judges: First, in the face of the general election, Trump, who is engaged in a rally of thousands, is in a hurry. If a large number of people are infected because of this and the stock market continues to plummet, then these years have been hard and good for reelection The pattern will be ruined once. Therefore, the Fed must be “forced” to cut interest rates sharply, at least to hold the stock market until the end of the election.
Second, the United States economy will have significant “uncertain” variables due to the epidemic, especially in Europe, the United States is more worriedIf global suppliers such as China, Europe, Japan, and South Korea are tied to the economy by the epidemic at the same time, the US economy is unlikely to have any good fruit, so the United States must join hands with Europe immediately, not only to quickly control the epidemic, but also to provide Common economic war “epidemic” plan.
Third, the US economy itself has felt the severity of the impact of the epidemic. In March, many large and small supermarkets in the United States have already snapped up, which partially reflects the national panic of the epidemic, plus the US Centers for Disease Control and Control (CDC) Frequent work mistakes have greatly reduced the trust of the entire society in the US government’s victory over the epidemic. Therefore, the United States needs to give more effective “placebos” at least at the economic and market levels, and a rate cut is a necessary option.
Do not be lucky in economic “war epidemic”
In the context of global economic integration and global deployment of the industrial chain and supply chain, the development of such an epidemic situation is tantamount to a disaster for the economy. What is more critical is that China, the epidemic occurred earliest and already had a large impact on the economy in the first quarter. If the epidemic spreads globally, it may have a further impact on the Chinese economy. The impact period will be extended and the depth of the impact will be increased.
Now the trouble is here. As of 00:00 on March 4th, customs across the country have found 6,728 people with inbound symptoms, including 779 suspected cases, and 75 positive cases of the new coronavirus nucleic acid test. After February 26, China began to publicly report confirmed imported cases abroad, with Ningxia as the first case. Subsequently, Zhejiang, Guangdong, and Beijing have successively confirmed confirmed cases of imported neocoronary pneumonia.
As of the evening of March 3, outbreaks were reported in 73 countries around the world, and more than 10,000 confirmed cases abroad. A total of 5,328 cases were confirmed in South Korea, with 32 deaths; a total of 2,263 cases were confirmed in Italy, with 79 deaths; more than a thousand cases were confirmed in Japan, and 117 cases were diagnosed in the United States; and the first new crown death was reported in Spain.
The above facts can prove that The risk of spreading the epidemic globally and the risk of re-importing into the country are increasing, especially the increasing control and control measures of the epidemic in various countries, which may lead to the interruption of personnel exchanges between countries in the world . For example, if all countries require immigration personnel to implement 14-day quarantine, international exchanges will be greatly reduced.
From the current passenger situation of airlines, the previous epidemic has caused a large number of cancellations of global flights, with a drop of more than 50% in Asia. This is not just a problem of the aviation industry, but the epidemic impact expressed by the aviation industry. In fact, the reduction of passenger flow contains a lot of economic information, and the industries related to human travel are only the direct victims of the “first shock wave”. It is not known whether the global supply chain crisis will be triggered in the future, but the risks are huge.
So, China must make preparations early, pay close attention to the impact of the epidemic on the global economy, and make plans and homework adequate. The author believes that from the current situation, the most important thing is the domestic demand policy.
Recent media reports said that provinces across the country have prepared nearly 25 trillion yuan in infrastructure projects, and some people have come forward to criticize that China seems to be repeating the same mistakes. In fact, these 25 trillion yuan projects are not necessarily all newly added projects due to the epidemic situation. Most of them should be stock projects that have already been planned or even started. They are reported now, but they tell people: we are fully prepared.
China needs to cut its quota rather than cut its interest rate
Monetary policy is also a domestic demand policy. It should effectively increase counter-cyclical adjustments, and not simply push up M2, especially the need for a new way of money supply.
In the recent period, some people often used the term “water release” to outline the release of the base currency, and even equated the increase in M2 in recent years with price increases as evidence of RMB depreciation.
The author believes that we must not do things that are “pained by our loved ones, and that our enemies are fast”. Today’s monetary policy needs to pay more attention to domestic economic needs, and we should not restrict ourselves on the grounds of “worrying about currency depreciation.”
From the actual situation, the situation of insufficient domestic demand is not a year or two. The Chinese economy does need supply-side structural reforms, but it cannot violate the dialectical laws of economic development, and “splitting supply and demand” is a serious mistake. For example, some industries in China do have an oversupply problem, so we need to reduce aggregate supply, but we must ensure that aggregate demand is stable and normal. If supply and demand are also pressed, then the problem will change, and eventually excess supply may become a “product of insufficient demand.”
Under the background of China ’s “war epidemic”, I am afraid that the realization of the goals and tasks of economic and social development depends more on domestic demand. What should I do? Fiscal and currency should go all out, work together, fiscal policy and goods should not appearCurrency policy is not tuned, and even runs counter to the picture. We have made such mistakes.
The Fed has cut interest rates. Will China follow up? The author’s opinion is: China needs to cut its quota, not its interest rate. Why? This is because China needs to increase investment and resolutely guard against financial risks. At present, China’s biggest financial risk is the problem of debt leverage. If simply reducing interest rates to reduce corporate financing costs may further increase the currency multiplier and further increase leverage risk.
In theory, M2 = base currency × currency multiplier, interest rate reduction and currency relaxation, in fact, the M2 growth rate is increased by stimulating the currency multiplier, which means that financial institutions must accelerate capital turnover and realize more credit supply This is the process of financial short-term, and it is a process of further magnifying financial leverage. In contrast, under the difficult circumstances for commercial banks to absorb reserves, if the central bank releases the base currency, especially the long-term base currency-distorted operation + quantitative easing, it can reduce the currency multiplier and stimulate bank credit more effectively. . This is not a “flooding flood”. The practice of the United States over the past years has shown that the result of releasing long-term base currency is to reduce the growth rate of M2.
The author believes that the RRR cut is to release the long-term base currency and increase the long-term base money supply through the RRR cut, rather than excessively pushing up the currency multiplier. Creativity) , which is more in line with China ’s dual goal of “both stimulating credit investment and reducing financial risks”. What’s more important is that volume and price are inseparable, and an increase in volume will reduce the price, so lowering the standard can also achieve the purpose of driving down the interest rate on loans.
You can’t just see the US cut interest rates and ignore the fact that the Fed has never stopped quantitative easing.
This article is from the WeChat public account: Jintai Capital Group (ID: jtzbz1) , author: Niu Wenxin