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In May 2024, the Federal Reserve kept interest rates unchanged and slowed down the pace of table contraction, Powell said.Cryptonftgames2022There is a possibility that interest rates will not be cut during the year, and the overall position is more "eagle" than in the previous period.Cryptonftgames2022We believe that interest rate cuts are likely to begin in the fourth quarter as the month-on-month downward trend in inflation is more certain, US consumption is constrained and property and inventories are weak. The number of interest rate cuts is not the key, but whether to open it is even more critical. It is expected that in the short term, there will still be a game of interest rate cuts within the year, but inflation is still sticky, the time point of interest rate cuts is difficult to determine, and US stocks and bonds may still be in tightening trading. Us stocks are expected to have downside risks in the second quarter, and US bond interest rates still have upward risks.

Abstract

1. In May 2024, the Federal Reserve FOMC meeting kept interest rates unchanged for six times in a row, in line with market expectations, but Powell's position was more "hawk" than in March. Us inflation continuously exceeded expectations from January to March in 2024. Under the stickiness of inflation, market expectations for interest rate cuts are getting lower and lower, and there are even voices that interest rates may be raised further. The interest rate cut guidelines given at the interest rate meeting in March 2024 are still 75BP, which is regarded by the market as a "partial pigeon" guide, but the recent inflation data continue to reduce interest rate expectations. Powell said at this meeting that the timing of interest rate cuts is still uncertain. It is only possible to cut interest rates when we need to have confidence in inflation, and the margin is "hawk".

2. From the interest rate resolution of the FOMC meeting in May 2024 and Powell's speech, we believe that there are four marginal increments: first, the Fed is very dissatisfied with the recent progress in inflation, inflation stickiness exceeds Fed expectations, and long-term inflation expectations remain stable, but short-term inflation expectations have risen. In May, the Fed's interest rate resolution added "in recent months, there has been a lack of further progress in achieving the committee's 2% inflation target." Powell also pointed out that the 2024 inflation data did not bring more confidence to the Fed. The second is to slow down the pace of table contraction and reduce the amount of US debt holdings. From June, the monthly debt redemption ceiling will be lowered from $60 billion to $25 billion, while the MBS redemption ceiling will remain unchanged at $35 billion. Third, the interest rate cut may still be far away, or even there is the possibility of not cutting interest rates. Powell said that there is a path to cut interest rates many times, and there is also the possibility that FOMC will not cut interest rates. Fourth, Powell said that he would not consider political events in his decision-making and played down the relationship between the US election and the decision to cut interest rates.

3. It is expected that the start of the interest rate cut in 2024 may be in the fourth quarter, with one rate cut in the whole year, and the preventive rate cut will focus on the start, not the number of times. The biggest decisive factor of interest rate cut is whether inflation can go down smoothly, the subsequent relative downward trend of inflation is relatively certain, but the speed may still be slower than expected, and the expected fluctuation of interest rate cut comes from the speed fluctuation of inflation downward. Entering the fourth quarter, on the one hand, the trend direction of inflation may be more fully reflected, and short-term volatility factors are gradually stabilized; on the other hand, the economy is more obviously restricted by high interest rates. including the downward consumption brought about by the declining wealth effect of the capital market, the continuous "bottom-grinding" of the US real estate and inventory cycle, and the difficulty to start the upward trend, the necessity of interest rate reduction is beginning to be highlighted. The number of interest rate cuts is not the key, the market will still follow the game whether interest rates will be cut or not.

4. after this interest rate meeting, US stocks go up first and then go down, and the interest rates on 2Y and 10Y US bonds go down first and then go up. It is expected that tightening trading is still on the way, and US stocks and US bonds are still at risk before it is determined to cut interest rates. After the announcement of the interest rate resolution, it was basically in line with expectations, and US stocks and US bonds did not change much. at the beginning of Powell's speech, due to the neutral position at the beginning, the latter half of the speech said that he did not have much confidence in whether interest rates would be cut in 2024. It was uncertain whether inflation would fall to a sufficiently restrictive level, and the market began to trade in reverse tightening, with US stocks falling and US bond interest rates rising. We expect that the stickiness of US inflation will remain strong in the future, the expectation of interest rate cut may still be delayed or reduced further, and the US stock and bond market is still in the process of tightening trading in the short term, until the confirmation of the signal of interest rate cut. Us equity and US bonds may face a new scenario, until then, US stocks and US Treasuries are still at risk.

5. Risk hint: the US economy is declining more than expected; liquidity risk events break out again.