The U.S. inflation rate in December last year hit the highest level since 1982, but the market did not fluctuate much, but the U.S. dollar index fell below the 95 mark.
Expert analysis pointed out that the market had high expectations for inflation earlier, and the current drop in the US dollar is a short-term adjustment. They believe that there is still a great opportunity for US stocks to rise, and it is recommended to buy stocks that resist inflation and grow rapidly.
The US consumer price index (CPI) rose 7% year-on-year in December last year, hitting a new high in nearly 40 years, in line with market expectations, and rose 0.5% month-on-month, slightly higher than expected; excluding food and energy prices, the core CPI rose year-on-year 5.5%, up 0.6% month-on-month, both higher than market expectations.
The reason for high inflation comes from the blockage of the supply chain. Fed Chairman Powell said at the hearing of the Senate Banking Group on Tuesday (11th) that the supply and demand imbalance and supply chain bottlenecks in the reopening of the economy after the epidemic are important reasons for raising inflation. It is hoped that this year will be able to “Return to normal supply conditions” but supply constraints are very persistent and not much progress has been made so far. And the Fed has pledged to act to avoid “entrenching” high inflation, which it will do if it has to raise interest rates more times over a longer period.
At the same time, the Fed is confident of maintaining price stability, normalizing policy in 2022, ending its asset purchase program at the end of March, and potentially allowing for a reduction in its balance sheet later this year. At the same time, U.S. President Biden said that the latest inflation data reflects a slowdown in price increases, but there is still a long way to go before returning to normal levels, while Deese, Biden’s economic adviser, also believes that price pressures are expected to ease in 2022.
Lin Qiaoji: The decline of the US exchange is only short-term, and the opportunity for US stocks to rise is still great
In an environment of high inflation, the Fed has accelerated water collection to control inflation. The interest rate dot plot from December last year shows that the United States will raise interest rates three times this year, while the market maintains the forecast that the Federal Reserve will raise interest rates in March. According to Bloomberg interest rate futures, the market believes more than 80% chance that the United States will raise interest rates in March. In fact, many Fed committees have said that the bureau needs to speed up the tightening of monetary policy. Even Brainard, a dovish representative, said that controlling inflation is the most important task, and he wants to bring inflation back to 2%.
However, U.S. inflation has been at 5% or more for eight consecutive months, and tightening monetary policy has traditionally brought money back, but now the market is doing the opposite. The U.S. 10-year bond yield fell to 1.75% at the end of the session, and the U.S. exchange index fell sharply and fell below the 95 mark.
Lin Qiaoji, managing director and head of research at CEB International, believed in an interview that the correction in the US dollar index is only a short-term adjustment, “Earlier, the market had higher expectations for inflation, so the US dollar exchange rate and bond interest rates rose more rapidly. In line with expectations, we will make short-term adjustments.” He expects that U.S. inflation will remain at a high level of 5 to 6 percent this year, and that the U.S. is currently in a state of “work and no return.” He believes that Powell’s remarks are mainly used to lower the market’s inflation expectations, thereby slowing down the pace of wage growth.
Xu Huifang: Seeing support at the 94.6 level of Meihui
In addition, Lin Qiaoji believes that the chances of U.S. stocks rising repeatedly are still high for the time being. Compared with the epidemic, the market is more concerned about inflation. Therefore, it is recommended to buy stocks that resist inflation and grow rapidly, while U.S. stocks are still higher than other markets.
Xu Huifang, an investment advisor of Guotai Junan Wealth Management, said in an interview that the market has now expected to raise interest rates from 3 times to 4 times, so I believe that the US exchange will not weaken. It regained its upward trend, and other currencies took the opportunity to adjust, and were optimistic about commodity currencies such as New Zealand paper and Australian paper. At the same time, she is also optimistic about US stocks, and emerging markets also rebounded while the US dollar fell.