The more the market moves, the more dangerous it is, because a huge trend is brewing, but danger also means a turn for the better. Hopefully you can read something different from today's article that smells like a crisis, but...
-The US stock market lost blood, the S&P 500 index fell 0.34%, and the Nasdaq index fell 1.2% (the Dow Jones index rose slightly 0.08%);
-The US dollar index plummeted and returned to the level before the CPI announcement soared last week;
-Bitcoin once again fell below $30,000;
-US Treasury bonds rose, and the yield of 10-year US bonds fell to 2.88%, a decrease of 1.67%;
-Gold returns to above $1,800
Risky assets are falling, while safe-haven assets are rising. It smells like a crisis, but is it true?
In fact, I see some good news from the above trend.
1. First of all, although the volatility is not large, it shows a very important problem-the market trend begins to conform to normal logic, and the market begins to become less complicated, concise and complex for investors. Last night's decline in US stocks was purely due to economic data. In May, the manufacturing index of the Federal Reserve Bank of New York fell sharply to a negative value.
2. Secondly, the yield of US bonds declined. After hitting 3.2% a week ago, the benchmark 10-year yield of US bonds fell by 4.7 basis points to 2.886%. Since then, the decline indicates that the market has digested all or most of the expected interest rate increase of the Federal Reserve (the most important thing happening in the market at present is that the yield of 10-year US bonds has remained below 3%).
The yield of 10-year US bonds has dropped by nearly 30 basis points since it hit 3.20% on May 9 (the highest since 2018).
3. In addition, the US dollar index declined at a high level, and the sharp rise of the US dollar pushed up borrowing costs and triggered financial market fluctuations. Although no one wants to believe that the US dollar index has peaked so far, the simultaneous decline of US bond yields and US dollar index is good news for the stock market (as can be seen from the small decline of US stocks last night).
4. At present, the US stock market continues to be depressed. Apart from the deterioration of liquidity, a more important factor is-in response to the Fed's policy mistakes-the Fed's mistake is to raise interest rates too late. In the past, while US stocks rose irrationally, the Federal Reserve had already set prices for them behind their backs.
Former Federal Reserve Chairman Ben Bernanke mentioned this issue last night, and the Fed made a mistake in delaying tightening policy. One of the reasons why they do this is that they don't want to impact the market. Bernanke is also a turnaround (a scholar of the Great Depression), and one of my favorite Fed chairmen.
Former Federal Reserve Chairman Bernanke Accepts CNBC Interview
In fact, there is another saying-Biden postponed the nomination of the Fed chairman last year (about two months later than in previous sessions). At that time, Powell didn't know whether he would be re-elected because he didn't make up his mind to start the interest rate hike cycle.
Now there are two major trends that must be focused on:
First, the economic recession hype
Note that it was "hype", which didn't actually happen. Short-term markets will continue to price recessions, but there will always be a moment when they come back to reality (manufacturing and services activity, though off peak, is still expanding).
Recession warnings have been circulating for months this year:
-Russia-Ukraine war
-Epidemic prevention and control
-The more hawkish Fed
As long as one of these three points changes first, the fear of economic recession will weaken and the market will undergo a new reshuffle (if the worst possibility does not happen, the stock market will usually rise).
Second, buy US Treasury bonds again (but it is difficult to judge the yield to peak)
Investors turned to safe haven and bought US Treasury bonds again.
-CityMarket sentiment has shifted from fear of inflation to fear of recession
-Short-selling power is exhausted
-The stock market has fallen sharply (need to hedge)
In this case, US Treasury bonds are favored again.
By the way, the market is about to have the next good news. At 02:00 a.m. Beijing time on Wednesday, Federal Reserve Chairman Powell will give an interview to the Wall Street Journal. The Wall Street Journal is regarded by some traders as "the mouthpiece of the Federal Reserve". Powell's voice through this newspaper is obviously to boost market confidence, hoping that he can say something different when the time comes.
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