Spring Festival overseas financial market two expectations: the European Central Bank and the United States non-agricultural

2022-04-28 0 By

In terms of fund flows, global bond markets saw their biggest outflows over the lunar New Year holiday since March 2021, while the sell-off in Meta and PayPal shares reflected the beginning of trading the “end of the pandemic”.As the Spring Festival holiday is coming to an end, the trend of overseas financial markets has also come to an end. As shown in Figure 1, during the five trading days of overseas financial markets during the Spring Festival, commodities on the whole performed best, while overseas bond markets and the US dollar performed poorly, and the stock market showed obvious divergence between Europe and the US.In terms of fund flows, global bond markets saw their biggest lunar New Year outflows since March 2021, while the sharp falls in Meta and PayPal shares — down 21 per cent and 23 per cent, respectively — reflected the beginning of trading the “end of the pandemic”.How to understand the performance of the above overseas financial markets during the Spring Festival?As you can see in Figure 2, if you search for all the news reports on overseas financial markets on Bloomberg during the entire Chinese New Year holiday, the most frequently used word is not U.S. stocks or the U.S. dollar, but German bonds!What happened to German bonds?As shown in Figure 3, the 10-year German bund interest rate surged 25bp during the Spring Festival, far surpassing the 14BP rise in 10-year US bond interest rate during the same period and hitting the highest since January 2019.German debt interest rates of the surge occurred against the background of inflation in the euro area continue upward, the degree of its more than expected even than the United States (figure 4), as a result, the European central bank finally no longer calm, policy-setting meeting on February 3, the European central bank President lagarde abandoned for promise not to raise interest rates in 2022, double the trigger for the euro zone debt, after the meeting,Money markets are already betting on the ECB raising rates twice in 2022.Therefore, the European Central Bank from dove to eagle is the first Spring Festival overseas market expectations.We believe that the impact of this continued fermentation should not be underestimated.As shown in Figure 5, the outperformance of American tech giants relative to the global market since 2014 is closely related to the QE of The European Central Bank, which is probably due to the loose liquidity spilt of the European Central Bank supporting the outperformance of American stocks.So if the European Central Bank turns to monetary tightening this year, the decade-long outperformance of U.S. stocks could well be broken.At the same time, as we have pointed out many times in previous reports, the negative interest rate of German bonds has always been an important factor restricting the upward trend of US bonds. Now, as German bonds get out of the negative interest rate, the interest rate of US bonds will be given more upward space.The unexpected strength in US non-farm payrolls was the second forecast negative for the Spring Festival overseas market.The 467,000 jobs added in January followed an upwardly revised 709,000 in the previous two months, suggesting that the new outbreak of Ormick’s disease has not hampered the recovery in U.S. employment.The U.S. jobs recovery at the start of 2022 was broad-based at the sector level, with the largest post-pandemic jump in labor force participation.However, the continued stronger-than-expected pick-up in wages suggests that the Labour market remains tight.It is worth noting that the shortfall of 2.95 million non-farm jobs in January 2022 was largely due to the leisure and hospitality sector, which is now largely back to pre-pandemic levels (Figure 6).Thus, as the ormick epidemic recedes, full employment in the U.S. labor market is within reach, which means the Fed’s four rate hikes this year are justified.Under the above two expectations, we expect the overseas market will continue to play a game between the recovery of fundamentals and the tightening of policies after the holiday.We continue to see no easing in the upside risks to inflation in the first half of 2022, so commodities are expected to continue to perform well amid increased volatility in equities and bonds.We will give an in-depth analysis in our next report.Domestically, we expect the A-share market to rebound after the holiday, but the direction of the subsequent market is still dependent on whether expectations of improved fundamentals or policy increases can be realized.Risk tip: the spread of the epidemic is more than expected, and the policy to hedge the economic downturn is less than expected