The U.S. dollar plummets and interest rate hikes may be over!China’s central bank may cut reserve requirement ratio again before the end of the year

U.S. stocks closed slightly higher on Friday, with the Dow Jones Industrial Average rising 0.01%, the Nasdaq Composite Index rising 0.08%, and the S&P 500 rising 0.13%. A series of economic data released recently showed that U.S. inflation has cooled and economic growth has also slowed, strengthening investors’ expectations that the Federal Reserve has ended raising interest rates. The three major U.S. stock indexes have recorded gains for three consecutive weeks.

U.S. inflation cools, economy slows

Data recently released by the U.S. Bureau of Labor Statistics show that the U.S. consumer price index in October (CPI) and the core CPI has cooled across the board, with the core CPI that the Fed is more concerned about falling to its lowest point in more than two years. The two major inflation data were lower than market expectations, both year-on-year and month-on-month.

Specifically, the U.S. CPI rose by 3.2% year-on-year in October, lower than the expected 3.3%; the month-on-month growth rate slowed to 0 from 0.4% in September, lower than the expected 0.1%. Core CPI (excluding factors with large price fluctuations such as food and energy) in October slowed slightly to 4% from 4.1% in September, which was also lower than the expected 4.1%; month-on-month growth slowed from 0.3% to 0.2% , lower than the expected 0.3%.

In addition to cooling inflation, recent data also indicate that U.S. economic growth is slowing. Data show that U.S. retail sales recorded a monthly rate of -0.1% in October, a new low since March this year.At the same time, the United States in OctoberPPIThe monthly rate recorded -0.5%, the largest decline since April 2020.

Dollar plunges and interest rate hike may be over

Under the influence of weak economic data, the market has strengthened expectations that the Federal Reserve will end its interest rate hike cycle, and the dollar is on the defensive again this week. The U.S. dollar index fell back on Friday, with the weekly decline expanding to 1.87%, the largest weekly decline since mid-July, narrowing the U.S. dollar index’s gain this year to 0.32%.

Many economists “strongly believe” that July this year will be the last time the Federal Reserve raises interest rates.Goldman SachsGroup Chief U.S.analystDavid Mericle publicly stated that the most difficult part of the (U.S.) inflation war is over.Some institutions have begun to predict when the Federal Reserve will cut interest rates, UBS InvestmentbankThe latest forecast is that the Federal Reserve will start cutting interest rates as early as March next year and will cut interest rates by 275 basis points throughout next year.

A-share Shanghai and Shenzhen Index rose for 4 consecutive weeks

Domestically, domestic economic data have rebounded significantly recently, and goods prices in Octoberimport and exportThe year-on-year decline turned to increase, the social retail sales exceeded expected growth, and the sales exceeded the standard.Industrial added valueGrowth is accelerating. The RMB exchange rate has been significantly supported, coupled with the weakening of the US dollar index over the same period. Since November, the offshore RMB exchange rate has risen from 7.3424 to the current 7.2172, an increase of more than 1,250 basis points.

In the third quarter, A-shares adjusted under the pressure of the strong US dollar and northbound outflows. However, as the economy bottoms out, external pressures ease, and many favorable policies continue to ferment, A-shares have also strengthened significantly recently. Shanghai Composite Index,Shenzhen Component IndexIt has been rising for 4 consecutive weeks now.GEM IndexAlthough it recorded a slight decline this week, it had risen nearly 2% in the previous three weeks.

It is worth noting that although the performance of the three major indexes this week was divergent, individual stocks rose more and fell less, and the performance of small market capitalization stocks was significantly stronger than that of large stocks. Judging from the growth of major cross-market indexes, CSI 2000> CSI 1000>CSI 500>CSI 300>SSE 50the CSI 2000 Index, whose constituent stocks have an average market value of less than 10 billion, rose as high as 3.19%.

The better performance of small-market capitalization stocks may be related to market liquidity. As liquidity pressure increases at the end of the year, the amount of funds required to push up the rise of small-market capitalization stocks is relatively small.

Liquidity pressure rises at year-end

According to agency statistics, due to the large maturity scale of open market operations, accelerated government bond issuance, and seasonal increase in M0 (cash in circulation), the funding gap in November is expected to be around 1.9 trillion yuan, which is relatively large.

for maintenancebankThe liquidity in the system is reasonably sufficient. On November 15, the central bank launched a 1,000 billion yuan medium-term lending facility operation (including the renewal of the two MLF expirations on November 16 and 30) and a 10 billion yuan reverse operation.repurchaseoperate.

After the central bank launched a 1 trillion yuan MLF operation, market liquidity pressure has eased, but it is still in a tight state.from the latestShanghai BankpeerslendingJudging from the situation, except for overnight lending, all major maturitiesinterest ratehave increased, among which, the period of 2 weeksinterest rateIt rose the most, with an increase of 13.3 BP.

The reserve requirement ratio may be lowered again before the end of the year

Recently, due to the increasing momentum of tight funds in the market, calls for lowering the reserve requirement ratio are getting louder and louder. At this time, the central bank is increasing the MLF to the trillion level. Will it further lower the reserve requirement ratio? In this regard, industry insiders generally believe that there is still the possibility of a RRR cut before the end of the year.

Wang Qing, chief macro analyst of Oriental Jincheng, said that while taking into account liquidity management, we can focus on releasing signals of moderate and stable growth to promotecreditthe growth rate of social financing has picked up relatively quickly, and guided the financing costs of the real economy to decline. The central bank may also implement another RRR cut before the end of the year.

China Everbright BankZhou Maohua, a macro researcher at the Department of Financial Markets, also pointed out that the central bankcurrencyPolicies create a suitable monetary environment for the recovery of the real economy, that is, social financing, M2 year-on-year and nominalGDPGrowth is basically matched, with more attention being paid to countercyclical adjustments. Considering that financial institutions are preparing for a “good start” and responding to liquidity needs at the end of the year and across the New Year, we do not rule out the possibility of the central bank lowering the reserve requirement ratio by 0.25 basis points around the end of the year and launching more structural tools.

Judging from the latest statement of the central bank, the probability of lowering the reserve requirement ratio before the end of the year may not be low: On November 17, the Chinese peoplebankthe State Administration of Financial Supervision, and the China Securities Regulatory Commission jointly held a symposium on financial institutions, emphasizing the need to implement the requirements of cross-cyclical and counter-cyclical adjustments, focus on strengthening balanced credit extension, and make overall plans for credit extension in the last two months of this year and the beginning of next year.

According to analysts, on September 15, the central bank lowered the reserve requirement ratio for the second time this year beyond expectations, announcing a reduction in the reserve requirement ratio for financial institutions.deposit reservesThe rate was 0.25 percentage points, laying a liquidity foundation for the A-share rebound after October. If the RRR is cut again before the end of the year, A-shares may rebound further, led by heavyweight sectors such as large financial and real estate, which are directly beneficial to the RRR cut.