Crazy! The Federal Reserve has thrown money for 21 days! U.S. stocks wipe out all gains since Trump took office
(Data map) On March 13, local time, US President Trump announced a "national emergency" at the White House. Published by China News Agency, Chen Mengtong
Last night, the US Federal Reserve urgently took out a heavy weapon from the toolbox before the US stock market opened.
Open QE with no upper limit!
To be straightforward, just to spread as much money as you want.
This picture is too familiar.
From March 3 to March 23.
For 21 days, the Fed has been cramming money.
Witness history over and over again, offering "Wang Boom" again and again, but US stocks are still falling.
On the 23rd, US stocks closed. The Dow fell 3.04% to 18591.93 points; the Nasdaq fell 0.27% to 6686.67 points; the S & P 500 index fell or 2.93% to 2237.40 points.
At this point, both the Dow and the S & P 500 have erased all gains since Trump took office, setting new lows in more than three years.
What happened in 21 days?
What policies has the Fed put out in the past 21 days? What kind of reaction does the stock market give?
On March 3, the Federal Reserve adopted the first unconventional interest rate cut since 2008, reducing interest rates by 50 basis points, and the three major stock indexes fell by nearly 3%;
On March 13, the Federal Reserve announced that it would start a reverse repurchase operation and provide a ceiling for reverse repurchase to release liquidity to the market again. As a result, US stocks melted down;
On March 16, the Federal Reserve once again offered unconventional operations, significantly cutting interest rates by 100 basis points to the zero interest rate range. At the same time, it announced the purchase of at least US $ 500 billion of US Treasuries and US $ 200 billion of institutional mortgage-backed securities, and 700 billion of QE. Appears, US stocks continue to melt;
On March 18, the Federal Reserve launched its weapon against the Great Depression and launched the Commercial Paper Financing Instrument (CPFF). At the same time, the primary dealer credit facility (PDCF) debuted and continued to “inject water” into the market. All three stock indexes rose. Over 5%
On March 19, the Federal Reserve announced the launch of the Money Market Mutual Fund Liquidity Instrument (MMLF). Currency instruments continued to increase, and all three major stock indexes closed up.
On March 20, the Federal Reserve and the nine major central banks established temporary USD liquidity arrangements in the hope that this will reduce the pressure on the global dollar financing market and further reduce the negative impact of domestic and foreign domestic and corporate credit supply. All three stock indexes fell more than 3 %;
On March 23, the Federal Reserve announced a wide range of new measures to support the economy, including open asset purchases, expanding the scale of liquidity and convenience of the currency market, and emphasized that in order to ensure market operation and monetary policy transmission, unlimited purchases of US debt will be made on demand. And institutional mortgage-backed securities, launched an unlimited QE, all three major stock indexes closed down.
In the latest bailout policy, the Fed will begin to provide unprecedented credit support to households, small businesses, and major employers. The Fed said in a statement that these measures were taken because "it is already becoming clear that our economy will face severe disruption."
The Federal Reserve said that during this challenging period, they will be committed to using a variety of tools to support American workers, businesses and the US economy.
"The new crown virus pandemic is causing huge difficulties for the United States and countries around the world. Our country's top priority is to take care of those infected and limit further spread of the virus." The Federal Reserve said it must take proactive measures in the public and private sectors , Limiting losses to employment and income, and promoting rapid economic recovery after a brief disruption.
The drawing country is through train Hou Yutong
Why do US stocks keep falling?
All the bullets appeared to have been fired on the cotton, and the US stocks remained sluggish.
According to Ren Zeping, chief economist of Evergrande Research Institute, the decline in U.S. stocks is due to three major concerns in the market.
First, the market is worried when the epidemic will be brought under control. According to the latest data from Johns Hopkins University in the United States, as of 6:36 on March 24, Beijing time, the total number of confirmed cases worldwide has exceeded 370,000, and the number of confirmed cases in the United States has exceeded 43,000, ranking third in the world.
Obviously, monetary and fiscal stimulus have little effect on the control of the epidemic. The test is the ability of the country to mobilize.
Second, the market is worried about whether the economic stagnation will cause a surge of unemployment? With the spread of the US and European epidemic and the upgrade of epidemic prevention measures, the market generally expects that the US economy will experience a significant negative growth in the second quarter, and monetary stimulus and liquidity support are more like painkillers.
The correct step should be to contain the epidemic situation, then restore production and life, and finally expand domestic demand.
Third, can money solve everything? For example, the stock market bubble, high corporate debt leverage, manufacturing relocation, hollowing out of industries, widening income gap, rich and poor, social tearing, bleak American dream, etc. These are the risks buried by long-term currency oversupply in the past. Drink again to quench thirst, is it in a vicious circle?
Ren Zeping bluntly stated that now that American politics is abducted by populism and monetary policy is abducted by politics, it is very dangerous. Instead, the tax cuts during the Reagan era, the construction of Internet infrastructure, and the suppression of inflation by former Federal Reserve Chairman Volcker demonstrated the historical role and professionalism of the elite during the crisis.
"What we want to see is that the Fed's continuous injection of liquidity into the market this time will not save the economy that is about to decline." Said Pan Xiangdong, chief economist at New Times Securities.
Pan Xiangdong believes that this round of economic recession was caused by the new crown pneumonia epidemic. Consumers had to reduce consumption because of the outbreak, and producers had to stop work because of the outbreak. Enterprises cannot produce normally due to the impact of the epidemic, and at the same time, they will face a sharp decline in orders brought by the shrinking consumption in the future.
In this context, some companies will have to face the risk of bankruptcy due to the rapid cash flow crisis caused by the sharp decline in income, which will increase the unemployment rate and exacerbate the economic recession. Pan Xiangdong said: "These economic activities, the Fed's injection of liquidity will not have much effect."
JP Morgan Chase predicts that US GDP will shrink at an annual rate of 14% in the second quarter, and Bank of America is expected to shrink by 12%. Goldman Sachs is expected to give a 24% contraction.
Morgan Stanley judges U.S. economy to fall sharply by 30% in second quarter
There is no doubt that the situation is grim. St. Louis Federal Reserve President Brad said in an interview recently that the U.S. unemployment rate may hit 30% in the second quarter due to the blockade measures against the epidemic, and the gross domestic product (GDP) will drop by unprecedented 50%. .
Li Qilin, chief economist of Yuekai Securities, bluntly stated that what investors need to pay attention to is whether the epidemic can be effectively prevented and controlled. What the Fed can do is only to delay the clearance time. Until the epidemic is out of control, the fate of the clearance cannot be changed.
"So, monetary easing cannot really reverse risk appetite. What is really useful is strong anti-epidemic measures, vaccines, and potent drugs, while monetary easing placebo is useless." Li Qilin said.
What else can the United States come up with?
After the launch of unlimited QE, it is expected that there will be a big stimulus of 2 trillion US dollars in fiscal stimulus.
In order to save the US economy from the impact of the epidemic, the US government and the US Congress originally planned to pass a US $ 2 trillion rescue plan on Sunday evening at US time.
Including the "Helicopter Spread Money" plan, directly issuing consumer vouchers and directly sending money to ordinary people's accounts.
Ren Zeping believes that due to technical differences in the design and implementation of the plan, it is temporarily deadlocked, but it may only be a matter of time before it is launched.
Li Jianjun, chief researcher of China Business Intelligence Group, said that from this time the Fed sacrifice the highest level of monetary policy in history, we can not only see the severity of the damage to the US economy under the epidemic, but also appreciate a new core that the Fed may imply. aims.
This goal is evident in a recent interview with St. Louis Federal Reserve President Brad. "By any means, every individual, every family and every business can spend the second quarter of this year," Brad said.
Li Jianjun believes that Brad's statement above can be understood as preserving consumption and production capacity for economic recovery after the epidemic. This is a relief model similar to transfer payments, rather than a credit model. We must draw attention to this, and it may become the new rules of the Fed's operation for some time to come.
"If this judgment is correct, then we can expect that the US government's financial rescue plan will be launched to provide more direct financial support and ensure the fundamental foundation of the US economy." Li Jianjun said.
Zhang Ming, director of the International Investment Research Office of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, believes that the possibility of the Fed's next announcement of a direct purchase of stock market ETFs, large blue chip stocks, or investable bonds is not ruled out.
How does China respond?
The Fed has come out wildly loose, how should China respond?
"At the moment when the US government loses its policy will, China's monetary policy should have it." Zhang Ming said that monetary policy operations should be based on the needs of domestic economic development, and should not follow the pace of the Fed. In a global environment with generally negative interest rates, the Chinese economy and Chinese market that can maintain positive interest rates will have greater appeal.
He believes that from the second quarter of 2020, the Chinese economy will bottom out and the US economy and the global economy will turn down. The last strong rise of the Chinese economy occurred after the 2008 subprime mortgage crisis. In 2020, regardless of the proportion of China's economy in the global economy or the contribution of China's economic growth to the global economy, it is expected to reach a new level.
Li Qilin said that China ’s national defense epidemic measures have been very effective, and the positive effects of fiscal easing and currency easing on entities are much stronger than overseas, and the relative strength of RMB assets is relatively certain, but it is still necessary to pay attention to the uncertainty of insufficient physical demand.