On March 15 local time, the Federal Reserve lowered its target range for the federal funds rate to an ultra-low level of 0-0.25% and launched a $700 billion (about RMB 5 trillion) quantitative easing program. The last time zero interest rates were applied was in 2008, when the financial crisis hit.
1, there is nothing wrong with this, the Federal Reserve “super-expected, massive” interest rate cut in order to counter the negative impact of the new crown epidemic on the domestic economy.
- The biggest short-term beneficiary of a rate cut is Trump. This year’s U.S. presidential election will be held, beautiful economic figures and prosperous bull market is Trump’s “trump card”, while the new crown epidemic outbreak overseas has had a significant impact on the U.S., Europe, Asia Pacific stock markets, if the U.S. stock markets fall apart, Trump and Biden will be at a significant disadvantage, and even some votes from Wall Street may “go against”. And yesterday night the Federal Reserve’s “super-expected, massive” interest rate cut, is undoubtedly a strong boost to the market, is expected to U.S. stocks in the first few weeks of the plunge, after finally expected to usher in a respite. And Trump is naturally the biggest beneficiary of this “respite”.
3, just like last year, the Fed’s QE will undoubtedly have an exemplary effect on other countries, and is expected to see more countries’ central banks cut interest rates urgently thereafter.
4, undeniably, the Federal Reserve’s “zero interest rate” policy on the Chinese central bank has a “reverse” effect. If our monetary authorities do not intend to adjust the benchmark deposit rate in the short term, they may be at a passive low at the financial market level. Although according to the classical theory, capital’s profit-seeking behavior will chase financial assets with relatively high interest rates, the Federal Reserve cut interest rates to zero, while China maintains positive returns, funds should be biased to hold RMB assets, but the actual situation and may be very different: on the one hand, due to the existence of “double down” domestic expectations, but last Friday only announced a rate cut, the interest rate cut is expected to short, if the central bank of China still does not cut interest rates after the implementation of the Federal Reserve zero, the expected short is likely to cause market worries, increasing bearish sentiment; on the other hand, the United States stocks in the early weeks of the Federal Reserve plunged, especially the two meltdowns, do not rule out the possibility of retaliatory rebound after the short-term ultra-low (although last Friday night trading has retaliatory rebound). In terms of speculative psychology, overlaid with the Federal Reserve’s “zero interest rate” of a large amount of money, international capital will be more inclined in the short term to short U.S. stocks, while despising RMB assets.
5, of course, the above bearishness on RMB assets is based on short-term sentiment, but from a medium-term perspective, the economic fundamentals of China and the United States have very different expectations: China’s economy is expected to bottom out in the second or third quarter, while it remains to be seen how effective the US $700 billion stimulus program can be. A shares are expected to break out of the cocoon and slowly climb along with domestic fundamentals in the next two quarters.