To The Moon

The statement that the Federal Reserve will suspend interest rate hikes in September was first put forward by Bostic.

As early as Monday, Atlanta Fed President Bostic said in an interview with reporters: After raising interest rates by 50 basis points in the next two months, it may be reasonable for the Fed to suspend further interest rate hikes to assess the impact of actions on inflation and the economy.

This is the first person in the Federal Reserve to propose to suspend interest rate hikes. This is not to disagree with Powell, It's the other way around, His remarks are probably after internal discussions, He chose to throw out such an expectation to boost the rise of US stocks, but Bostic did not have the right to vote this year, and always advocated adopting a neutral and moderate monetary policy. His words did not bring much increase to the market. On Tuesday, the US stock market overtook the plate and swallowed up the poor increase on Monday.

But just last night, the minutes released by the Federal Reserve once again confirmed Bostic's words. The full text of the minutes is unsurprising, but the most important sentence is:

The accelerated tightening puts the Fed in a good position later this year to assess the impact of policy tightening and the extent to which economic development needs policy adjustment.

It will raise interest rates by 50 basis points in the next two meetings, after which interest rate hikes may be suspended, but it depends on the development of inflation data.

the Federal Reserve officially endorsed Bostic's words.

Other summary contents of the minutes have little impact on the market, and the theme remains unchanged at all: The path of raising interest rates and shrinking the table has not changed in the next two months. The US economy is still stable, but the risk of rising inflation is still very high. The focus of the Fed's work is to reduce inflation. At the same time, it should pay attention to the risk changes in the stock market and economy to adjust its strategy at any time.

Everyone knows that as far as the current global economic situation is concerned, bear markets and recessions have never been so close to us as they are now. The expectation of suspending interest rate hikes in September is actually to help S&P up on the edge of bear market, but even so, the bear market of US stocks may still be difficult to avoid.

​Review: Why are they all bargain-hunting bear market?​

As I expected last time, This time, it is highly probable that the Federal Reserve will really "surrender" in stages, and if the Federal Reserve really suspends interest rate hikes in September, the reason must not be that inflation has been suppressed, but that the original interest rate hike  have already hurt the fundamentals of the economy. If the market is not allowed to catch its breath, we will see the emergence of American recession next.

The Federal Reserve on a tightrope

On one side of the tightrope is a runaway surge in inflation, and on the other side is a stock market crash. Whichever side falls, the result is a bear market and recession.

Once the tightrope is over, then the other side is the "blonde girl age" of economic recovery accompanied by moderate inflation. Now, the Fed is walking on this wire rope.

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By suppressing demand and even triggering recession expectations, Forcing inflation to fall back is the only way for the Federal Reserve to raise interest rates and lower prices.

However, this time, Bloomberg's economic accident index has experienced a diving decline, and the profits of real enterprises have been obviously impacted by the slowdown in demand. The economy is far from being as stable as stated in the minutes, but there will be a recession with a high probability.

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Economic surprise index is an index obtained by weighting the difference between macroeconomic indicators exceeding or falling short of expectations. If most macro indicators exceed expectations, the accident index will rise, and if most macro indicators fall short of expectations, it will fall. At present, the surprise index has plunged to a low level in recent 20 years and is close to negative value.

This corresponds to the trend of US 2-year US bond yield futures. After hitting a high of 2.9, US bond yield has leveled off, which indicates the slowdown of future economic development on the one hand, and the market is also pricing that the Federal Reserve may suspend interest rate hikes on the other hand.

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​Corresponding to the unexpected diving of the US economic indicators is the continuous tightening of the US financial conditions index, the S&P 500 and the goldThe index of financial conditions fell at the same time, indicating that the Fed's monetary policy directly affected the rise and fall of the market.

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If we run the percentage change of the financial condition index out of the curve and compare it with the historical curves of 2015, 2018 and 2020, we will find that the recent change range of the Fed's interest rate hike and contraction table is almost the fastest in the past 10 years:

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​This brown curve shows a straight pull of almost 90 degrees.

However, even such an epic austerity measure is still weak in the face of an epic inflation sweeping the world.

At present, prices in the United States are still rising month-on-month, and due to the bird flu in US, the restriction of the pandemic and the continuation of the conflict between Ukraine and Russia, the interruption of supply chains such as food, energy and raw materials makes prices in the United States almost out of control. Eggs and poultry have risen by nearly 10 percent in the past month, and the increase in eggs continues. In supermarkets in New York, people can often see clashes over milk powder.

Let's take a look at how the price of an American burger has changed in the past year​​

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Six different raw materials have increased by more than 10 percentage points on average, especially beef and bacon, which account for the largest proportion, and their prices have increased by about 15%. If weighted, the price of a hamburger has increased by at least 13% in one year.

This is just a microcosm of the soaring national prices. Take a look at the egg prices affected by bird flu, which have taken off by 20 percentage points in June.​​

​Don't think that this has no impact on the price of the stock market. The price increase directly affects the market trend from two aspects.

One is corporate profitability. The rising cost of raw materials directly reduces the profit margin of enterprises, and reduces the gross profit of enterprises downstream of the industrial chain. In addition, the rising rate of return squeezes the valuation of enterprises, and the stock price will certainly fall.

Second, rising prices have weakened consumption and reduced economic activities. The Federal Reserve has controlled inflation by raising interest rates and shrinking its table, which has further aggravated the rise in borrowing costs and suppressed market demand. Consumption, investment and foreign trade activities are all decreasing. More people will take cash in their hands to cope with higher basic living costs, and are unwilling to do any other activities.

Looking at the current growth in cash stocks in China and the United States, we can see how little confidence people have in the future economy

The first is the United States. At present, the deposit reserve used by the Federal Reserve for overnight reverse repurchase has hit a daily amount of 2 trillion US dollars for the first time.

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​Many American residents have chosen to put their money in the bank instead of putting it into the bond market or stock market, and even their desire to spend has begun to weaken obviously.

And china side is not optimistic. The latest data from Bloomberg shows that the savings deposits in the banking system of China have reached 109.2 trillion RMB in April, which increased by 7% in the first four months, compared with the growth rate of 5.5% in the same period last year.

As we just shared, if the price of a hamburger has risen by 13%, then the pressure to maintain a basic life can be imagined. Just this week, the supermarket, consumer and media social stocks in the US stock market have just experienced a big decline, Amazon, Facebook, Wal-Mart and NyeFei, all of whom gave guidance on negative financial reports. Snap's share price almost halved overnight, and Tesla, Nvidia and other large-scale technology stocks were also in obvious downward channels.

This is very telling. Will American consumers, who can hardly maintain their basic livelihood, have money to spend on entertainment? How can advertisers make money? The decline in the total payment of Internet companies will also add a headwind to US stocks in this earnings season.

We should know that S&P has dropped by more than 18 percentage points from its 52-week peak. If it completely falls below 3800, it means that US stocks will completely enter a bear market, and the next step for the stock market to fall into a bear market is that the economy will fall into recession. In the past 95 years, S&P has fallen below the bear market range of 20 percentage points 14 times, but only three times, the US economy did not fall into recession within one year.

 But the question is, if the tightrope-walking Fed suspends interest rate hikes, will inflation get out of control?

The US inflation rate may has peaked

Inflation figures already showed clear signs of peaking, giving the fortunate Fed a very timely window, and Powells immediately tried to tilt their tightrope-walking balance bars in the opposite direction.

So Bostic suddenly threw an expectation at this time and said: To suspend the interest rate hike in September, it actually gives two messages: one is that the Fed thinks that the previous tightening measures have been effective, which is enough to give the economy a breath; The other is that the Fed's inflation control interest rate hike has shaken the foundation of the economy, and if it is not suspended, it may have significant negative effects.

Right now, The discussion about whether inflation has peaked is still raging. According to the Fed minutes, officials expect CPI to rise 4.3% for the whole year this year, and then fall back to 2.5% next year. This result has been raised from the data of the last meeting, while CPI has soared by 6.6% in the 12 months to the end of March, and only the CPI released by the Labor Department rose by 8.3% in April.

If the prices of basic consumer goods, such as grain and oil, remain unchanged at a high level, of course, there is no reason to say that the overall CPI increase this year is only 4.3 percentage points, unless the prices of a number of consumer goods that account for a large proportion of CPI will peak and fall in the near future.

This is also the result of Bloomberg survey. As predicted by Goldman Sachs, Bloomberg survey shows that Wall Street has reached a consensus that the year-on-year increase of CPI will peak in Q2 this year

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Goldman Sachs' forecast model shows that the price increase caused by supply constraints will continue to ease in June, while the prices of travel and other services will also drop significantly in Q3.

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This forecast is also confirmed in the survey report of global asset managers just released by Bank of America.

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The survey shows that as time goes by, fewer and fewer asset managers believe that the global CPI will rise

This has given the Fed an excellent "surrender window". If everything goes as we expected,Then, with the month-on-month decline of CPI data in June and July, US stocks and A shares will have a rare opportunity to rebound.

We still insist that，this short bear market rebound has not yet started.

If S&P can break through the 20-day moving average and challenge upward, I believe A shares will also go out of a very considerable structural upward market, and the yield of US bonds may peak and fall in the next two months, giving gold a good opportunity to rebound.

If you want to participate in the structural market of US stocks, you can look for opportunities from energy, technology, medical and materials stocks. From the perspective of capital inflow from equity funds, the market funds of US stocks still prefer energy and technology stocks.

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​However, supermarkets and consumer enterprises are still facing huge risks, because price fluctuations will make the stock price prospects more blurred.Same thing with gold, which is also in a big downward cycle. What do you think about it？

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