To The Moon

In the past 10 days, the implied interest rate curve of FederalFundsRate market has fluctuated greatly, as shown in the following figure:

​on March 8th, Powell's congressional testimony conveys a hawkish position on the immortality of inflation, The market interest rate price soared close to the end rate of 6%, and then the Black Swan incident occurred-the collapse of Silicon Valley Bank caused continuous thunder of small and medium-sized banks, Credit Suisse was difficult to operate, the US Treasury Department and the Federal Reserve rescued the market urgently.

After that, the interest rate was expected to drop sharply to the end rate of 4.75% on March 15th (green line above). March 16th, with the crisis between Credit Suisse and American small and medium-sized banks coming to an end, the market returned to stability, with an expected end rate of 5.25% (red above) and an 80% probability of 25 basis points in rate hike on March 22nd.

After the Credit Suisse crisis was temporarily dealt with, the European Central Bank withstood the pressure and continued to rate hike by 50 BPs , indicating that the central bank still maintained the established monetary policy against the background of persistently high inflation.

New tools to deal with sudden crises

The maturity mismatch liquidity crisis represented by Silicon Valley banks is solved through BTFP tools. In Citi's words, "the new BTFP tools are another name for QE-the assets on the balance sheet of the Federal Reserve will increase, which will increase reserves... Although technically speaking, they have not bought securities, but reserves will increase."

​Borrowing under the discount window of the Fed's liquidity instruments surged to $152.85 billion in the week ending March 15;

The Fed also revealed that "other credit extensions" released $142.8 billion in reserves ($0 for the bank's program last week), including loans to deposit institutions set up by the Federal Deposit Insurance Corporation (FDIC). The Federal Reserve's loans to these depository institutions are secured by collateral, and the FDIC provides repayment guarantee. "

The new liquidity surge created by the Fed means that the Fed's balance sheet has increased by $297 billion (the sum of the three red circles in the above table)-the biggest increase since April 2020, and eliminates four months of QT, which is half of the whole plan.

Rate hike raises interest rates with one hand, easing policies on standby with the other hand, patching and plugging market risks at any time, which is a good means.

Top and bottom judgment of US stocks

1. 1. Before the announcement of PPI and monthly retail sales rate on March 14th, as shown in the following figure, based on the multi-dimensional technical evaluation of time and space, I posted the top-bottom judgment point of US stocks on Twitter. Looking back, the four major indexes of US stocks have already appeared at the bottom of the stage, especially the rising trend of Nasdaq is more clear.

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1. 2. As the central bank handled the Black Swan incident in this round, A large amount of liquidity has been released, and European and American stock markets have also been saved. Except for the seriously affected russell2000 index, the S&P 500 index, the Nasdaq and the DAX30 index, which are all bottom out, the Nasdaq has shown a small-cycle upward trend and broke through the resistance of the 60-week moving average in one fell swoop. If it closes firmly on March 17, the probability of continuing to rise will greatly increase.

2. 3. Since late March, NASDAQ and the gap of US 10-year interest rate have finally been bridged. Through the recent Black Swan incident, the interest rates of US debt have dropped sharply, as shown in the figure below.

​The gap between the US 10 years (inversion) and NASDAQ has almost disappeared.

1. 4. The AAIII bull and bear index, which measures market sentiment, is at a stage low in the middle of the week, and the corresponding stock index is generally at a stage low.

​Summary:

US stocks hit a low on March 13 this week as scheduled, and kept fluctuating and rising before and after FOMC next week.

The plight of Silicon Valley banks and Credit Suisse opened the prelude to the liquidity crisis in 2023. The central bank is caught in a dilemma between fighting inflation and preventing crisis, Although monetary instruments can be used to deal with emergencies, with the passage of time, the pressure of high interest rates on the economy and financial institutions will be reflected.

When the next black swan flies, it is likely that there will be not one but a group. The recession of 23H2 is almost inevitable, and the trading opportunities of gold and US debt will eventually come.

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