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View details1.4 trillion dollars! This year, the global ETF attracted a record amount of gold.
This year, the global ETF attracted a record amount of gold, and the demand for various ETFs was hot. On Wednesday, according to BlackRock's data, as of October 31, the global ETF net inflow this year has reached 1.4 trillion US dollars, exceeding the record of 1.33 trillion in 2021. Karim Chedid, head of investment strategy for Europe, Middle East and Africa in BlackRock iShares, said: This year is expected to be a record year. Although many stock and bond indexes fell in the same month, the inflow in October reached $188 billion, the second highest in history, second only to $199 billion in July. However, Syl Flood, senior product manager of Morningstar, said that despite the record inflow of funds, the overall ETF assets decreased slightly from $13.5 trillion to $13.3 trillion, because the returns of most categories of ETFs in Morningstar declined slightly in October. The demand for ETF of fixed income, commodities and stocks is booming. Specifically, according to BlackRock's data, the demand for fixed-income ETFs is particularly strong this year, with a net inflow of $376 billion, exceeding the record of $331 billion set last year. As global central banks start to cut interest rates, investors hope to lock in higher yields when the yields are still acceptable. With the gold price hitting a record high before, the popularity of commodity ETFs also climbed, and the net inflow of commodities in October was $6.4 billion. If this trend continues, commodity ETFs will usher in the first positive growth year since 2020, with a total outflow of $28.4 billion in 2021-23. However, so far this year, most of the inflows have been absorbed by stock ETFs, which have absorbed $927 billion. Among them, the monthly inflow of American stock ETF10 was $75.5 billion, accounting for most of the funds as always. According to State Street Global Investment Management data, last Wednesday, the day after the election, $22.2 billion flowed into US-listed ETFs, breaking the record after the election in 2020. Emerging markets also absorbed $29.4 billion, with a record inflow in Greater China, with an inflow of $11.7 billion (ETF listed outside China) in October, more than double the peak in June 2022. According to Morningstar data, iShares China ETF (FXI) absorbed US$ 5.5 billion, the third highest in the world in October, and its assets more than doubled in one month, surpassing the world's largest ETF SPDR S&P 500 ETF Trust (SPY). Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-13 -
View detailsThe
The ETF version of "Widow Trading" continues. Even if the US debt falls, a large amount of funds will continue to flow into the US debt ETF, betting that the interest rate will peak. According to Bloomberg data, last week, Direxion's three-fold US debt ETF(TMF) with more than 20 years received a record inflow of $625 million. In addition, BlackRock's iShares ETF(TLT) for more than 20 years has received an inflow of 1.4 billion US dollars, and the inflow of funds in the previous week has reached 1.6 billion US dollars. Last week, the US bond market experienced a crazy week. First, it was sold off sharply after Trump won the election, and the yield soared across the board. The yield of the 10-year US bond once soared to over 4.47%, but then the trend reversed. Under the influence of traders' liquidation of the Trump deal, the strong auction of the 10-year US bond and the Federal Reserve's interest rate cut, the yield of the 10-year US bond fell by more than 8 basis points every week. Last week, both TLT and TMF also rose, with TLT rising by 1.82%. However, in terms of long-term performance, TLT has dropped by over 6% and TMF by nearly 25% this year. But money is still pouring in. TLT has attracted about $14 billion so far this year, which will be the third largest annual capital inflow since its establishment. In the same period, TMF has attracted more than $3.3 billion, which is the second largest annual capital inflow in its history. In fact, since 2020, neither of these two funds has seen positive returns. Athanasios Psarofagis, an intelligence analyst at Bloomberg, said: "You bought TMF because you thought interest rates would fall, but this kind of transaction never seemed to work. It broke many people's hearts. " In the case that the US economy remains stable, the Federal Reserve kicked off with a sharp interest rate cut of 50 basis points, superimposed with the radical fiscal stimulus policy that Trump may launch after taking office, which made the market worry that US inflation may rekindle, which led to the violent selling of US debt since September. The 10-year US bond yield has risen from around 3.5% to about 4.3% at present. At present, the market expects that the Federal Reserve may keep interest rates at a higher level than previously expected. The pricing of swap contracts shows that traders expect that by mid-2025, the Fed will reduce its benchmark interest rate to 4%, which is a full percentage point higher than their forecast in September. This means that the pain of "widow trading" may continue. In a report on Monday, a team of strategists of LPL Financial wrote: "Better economic data, the Federal Reserve, which may be too dovish, and more policy details of the Trump administration may push up the yield of US Treasury bonds ...... Only when there is a negative economic accident will the yield drop sharply from the current level." Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-12 -
View detailsA strong dollar may not last long during Trump's term.
Trump 2.0, the dollar may strengthen first and then weaken. On November 8, Mansoor Mohi-uddin, chief economist of Bank of Singapore, issued a document saying that Trump's return to the White House is expected to strengthen the US dollar in 2025. In the next few quarters, the euro may fall to 1 against the US dollar. If a full-scale trade war breaks out in 2025, the euro against the US dollar may fall below the historical low of 8.73. However, during Trump's full four-year term, multiple risks such as politics, finance, diplomacy and central bank crisis in the United States may weaken the strength of the US dollar in an all-round way, so the US dollar may hit a new low in the next four years. As of press time, EUR/USD reported 1.0724. In the short term, the dollar will continue to strengthen. On January 20, 2025, the new Trump administration will enter the White House. Mohi-uddin said that in the short term, the US dollar may continue to strengthen against other major currencies for four reasons: First of all, the fiscal deficit of the United States has reached 6.5% of GDP, and it will further expand and promote the rise of US bond yields. Mohi-uddin said that Trump hopes to extend the 2017 Tax Reduction and Employment Act, which was passed during his first term and will expire at the end of 2025. If the Republican Party wins the House of Representatives, the Trump administration is likely to further reduce taxes. Second, the sharp increase in tariffs next year will curb the demand for foreign goods and services in the United States. The president of the United States can set tariffs by executive order without the approval of Congress, and Trump has proposed to impose a 10% tariff on all imported goods. Mohi-uddin said that even if Trump lowers the tax rate in subsequent negotiations with other countries, extensive tariffs will reduce the US trade deficit and thus support the US dollar, and push up inflation in the United States, making it less likely that the Fed will continue to cut interest rates in 2025. Third, Trump's plan to restrict immigration may tighten the labor market in the United States. This move may push up wages and costs. Therefore, Mohi-uddin believes that this will further bring inflationary pressure, thus reducing the possibility that the Fed will continue to cut interest rates next year. Fourth, the Trump administration's policy prospect of tax cuts and deregulation will continue to support the US stock market, and the US stock market may continue to attract global capital inflows in the short term. To sum up, Mohi-uddin believes that the large-scale fiscal deficit, sharply rising tariffs, tightened immigration policy and active stock market in the United States are expected to support the US dollar in 2025, while the Federal Reserve will face the risk of a rebound in US inflation, and may only be able to reduce the benchmark federal funds rate to 3.75%-4% next year. In contrast, if the trade war leads to the economic downturn in the euro zone, the European Central Bank may need to reduce interest rates to a level far below 2%. However, the dollar may not be able to maintain its long-term strength. Mohi-uddin stressed that although the US dollar may strengthen in the short term after Trump takes office, he cannot maintain the strength of the US dollar throughout his term of office because the US dollar faces many long-term risks: First of all, Trump may continue to put pressure on the Fed to cut interest rates when US inflation rebounds. Moreover, the term of Federal Reserve Chairman Powell will end in May 2026, and Trump may appoint a successor who obeys him. Mohi-uddin said that this will weaken the dollar, because it will raise concerns about the independence of the Fed. Second, if the US federal government's fiscal deficit rises rapidly, investors' interest in the US market declines, and the US dollar may also be damaged. Mohi-uddin said that the US dollar can be used as a global reserve currency, mainly relying on the stability of US debt. Although the euro, RMB and Japanese yen lack sufficient substitutes, if there are fewer buyers in the US debt market, the US dollar will still face the risk of sharp depreciation. Third, if the Trump administration undermines the rule of law at home, uses federal agencies to crack down on domestic opposition, or disrupts the world order by withdrawing from the NATO alliance, investors may feel uneasy-the uncertain foreign policy of the Trump administration will prompt countries to get rid of their dependence on the US dollar at an accelerated pace. Finally, Mohi-uddin believes that the Trump administration may shift from promoting the strength of the US dollar to opposing it, so investors should not expect the US dollar to remain strong for a long time after Trump returns to the White House. For example, in 1985, the Reagan administration reached the Plaza Agreement with Japan, Germany, France and Britain to help the dollar depreciate. Therefore, investors should not expect the dollar to remain strong for a long time after Trump returns to the White House. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-11 -
View detailsBlackRock negotiates for a small proportion of the Millennium Fund to seek strategic cooperation.
BlackRock, the world's largest asset management company, and Millennium, a hedge fund giant, are seeking cooperation. The former intends to expand in the fast-growing alternative investment field, while the latter wants to diversify its business. According to media reports on Friday, people familiar with the matter revealed that BlackRock is in preliminary discussions with Millennium Fund on establishing a strategic partnership, and the world's largest asset management company may take a stake in the most profitable hedge fund. Although the shareholding ratio may be small, the potential cooperation reflects BlackRock's seeking to expand into alternative investment fields, and shows that the Millennium hopes to continue to expand its business. For the Millennium Fund, for many years, the Millennium Fund has been establishing strategic partnerships or accepting external investments, and various groups, from private equity firms to sovereign wealth funds, are interested in this. Last year, the Millennium Fund negotiated with its smaller competitor, Schonfeld Strategic Advisors, to invest billions of dollars, but the negotiations were later cancelled because the existing investors of Schonfeld expressed their willingness to give them more funds for management. The Millennium Fund was founded by Izzy Englander, with assets as high as $69.5 billion under management. It has more than 330 investment teams and operates under strict risk control. At present, there is only one flagship fund, with a return of 10% in the first 10 months of this year. Since its launch, the average annual return rate of the fund is about 14%. The fund is considering issuing a new fund for the first time in 30 years, aiming at illiquid assets such as private credit. For BlackRock, Larry Fink, CEO of BlackRock, has identified alternative investment (charging more than traditional investment funds) as a strategic focus and has been making acquisitions in related fields. Since the beginning of this year, the group has acquired Global Infrastructure Partners and Preqin, an alternative data provider, and is negotiating with HPS, a private credit management company. Now, the GIP transaction has been completed. The fund management company with assets of $11.5 trillion manages $450 billion of alternative assets, including $76 billion of hedge funds and other "alternative liquid assets". Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-08 -
View detailsThe Fed's interest rate cut in November was
He has publicly intervened in the Fed's decision. Now that Trump has entered the palace, Federal Reserve Chairman Powell will have to answer a series of questions, that is, after Trump returns to the White House, where will economic growth, inflation and borrowing costs go? At 3 am Beijing time on Friday, the Federal Reserve will announce its interest rate decision. The market generally expects to cut interest rates by 25 basis points, but the key lies in what policy guidance the Federal Reserve gives. At 3: 30 am, Powell will hold a press conference. He may try to show that he doesn't care about politics, but considering the stakes of the election and Trump's policies may change the economic and inflation prospects, investors will be highly vigilant about the relevant guidelines. Trump's victory has triggered a crazy repricing in the global financial market, and the market has increased its bet on "Trump Deal"-faster economic growth and higher inflation. The yield of long-term US bonds rose by nearly 20 basis points, while the US stock market hit a record high and the US dollar rose. Trump has previously said that it is necessary to comprehensively impose tariffs on American imports and cut taxes in all areas from corporate profits to overtime pay. These policies are widely regarded as inflation. He also considered changing the leadership of the Federal Reserve and claimed that he had the right to express his opinion on interest rates. During his first term, the Federal Reserve raised interest rates in 2017 and 2018. Trump asked Powell to lower interest rates, breaking the White House's practice of avoiding commenting on monetary policy. As Trump's policy mix is brewing, Powell needs to assure global investors that the Fed can cope with the impact of Trump's second term. As the Republican Party may sweep through Congress, the market's expectations for the path of monetary policy have changed. Wall Street is now cutting interest rate cuts: JPMorgan Chase: I bet that this week and next month will cut interest rates by 25 basis points respectively, but the subsequent rate cuts will be less than the pre-election pricing; Bank of America: If the new president significantly increases tariffs, the Fed may suspend interest rate cuts; Nomura: In 2025, the inflation rate will rise by 75 basis points. It is expected that the Federal Reserve will only cut interest rates once next year, while the number of interest rate cuts expected before the election is four. The specific impact of policies on inflation is unclear, and the Fed needs to slow down. Michael Feroli, chief American economist in JPMorgan Chase, said in an interview: For Thursday, it doesn't make any sense to consider Trump's policy, and it may not make much sense for December. But after December, the situation will become more complicated. The Fed can't know which policies proposed by Trump will be implemented or in what order, but this alone is enough to make officials more cautious. When you are more uncertain, you may need to slow down. Diane Swonk, chief economist of KPMG, expressed a similar view: As we enter 2025, the policy will affect the Fed, but they can only respond after the policy is completed. They will emphasize that any result of the election actually depends on how policies evolve and how they affect the economy. " Most economists believe that raising tariffs on the cost of American imports and reducing taxes to stimulate consumer demand will lead to inflation. If the Republican Party that has won the Senate continues to control the House of Representatives, Trump's ability to implement policies will be enhanced, and all this means that the Fed meeting may become more unpredictable. The inflation experience in the post-epidemic era makes the Fed more sensitive to the risk of rising prices. Any sign of accelerating inflation will mean that the Fed will either slow down the rate cut or give up the rate cut completely, and the interest rate will not be as low as previously predicted. In addition, it is worth mentioning that the Federal Reserve is not the only central bank to deal with Trump's re-election, which will force other central banks to respond. About 20 central banks around the world (accounting for more than one third of global GDP) will make interest rate decisions this week, including the Bank of England and the Swedish Central Bank, and both of them are expected to cut interest rates. Luis de Guindos, deputy governor of the European Central Bank, said that if Trump continues to fulfill his tariff commitments, the world will face economic growth and inflation shocks. In addition, inflation and rising interest rates in the United States tend to attract capital to leave emerging markets. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-07 -
View detailsThe Fed's Next Step: Trump's influence is far greater than Powell's.
The prospect of Trump's return to the White House is gradually becoming clear, and the Fed's future interest rate path is likely to change. According to the latest research report released by Bank of America Merrill Lynch, the result of the US election may have far more influence on the future policy path of the Fed than the speech made by Federal Reserve Chairman Jerome Powell at the monetary policy press conference. On Tuesday, local time, Bank of America Merrill Lynch analysts Aditya Bhave and Shruti Mishra released a report, pointing out that although the market is generally concerned about Powell's position on economic prospects and monetary policy, the new president's adjustment of fiscal policy will directly affect the Fed's decision-making. The two analysts wrote in the report: In our view, the election will have a far-reaching impact on the Fed's policy path than any remarks made by President Powell at the press conference. The report further explains that if Trump comes to power and carries out fiscal expansion, then the Fed may raise its neutral interest rate expectation. In addition, if the new president significantly increases tariffs, the Fed may suspend interest rate cuts for the sake of inflation and economic growth. The US election vote has just ended. According to the latest report of CCTV News, according to the latest estimates released by The Hill, Fox News and other American media, Trump, the US Republican presidential candidate, will get more than half of the electoral votes, which is expected to seal the victory of this US presidential election. It is almost a foregone conclusion to cut interest rates in November, paying attention to Powell's position on the election. The Fed's next interest rate decision will be released in the early morning of November 8, Beijing time. The market unanimously expects the Federal Reserve to cut interest rates by 25 basis points and lower the federal funds rate to the range of 4.5%-4.75%. Bank of America Merrill Lynch pointed out that the non-farm payrolls report in October was weak enough for the Federal Reserve to cut interest rates by 25 basis points in November and another 25 basis points in December. The Bank of America Merrill Lynch report mentioned that although Powell may emphasize the stability of the economy and the return of the inflation target at this meeting, the market should pay more attention to the impact of the election results on fiscal policy. Bank of America Merrill Lynch believes that changes in fiscal policy will directly affect the Fed's monetary policy, especially in the current economic environment. Powell may be asked about the election at the press conference after the meeting, but Bank of America Merrill Lynch expects that he will emphasize that the Fed will stick to its responsibilities and respond to the upcoming data, rather than commenting on the policy agenda of the next administration. This shows that although the election results have a significant impact on the Fed's policies, the Fed will still claim to maintain its independence and will not directly comment on the political agenda. If tariffs are significantly increased, the Fed will be more cautious The report also mentioned the impact of the uncertainty of tariff policy on the Fed's policy. Bank of America Merrill Lynch pointed out that the Fed's response to tariffs is difficult to determine, because they may ignore the impact of tariffs on inflation, regard it as a temporary price fluctuation, and pay attention to negative growth consequences. However, considering that the Fed misjudged the impact of the supply shock in 2021 and considered its impact on inflation to be "short-lived", the Fed may be more cautious in the face of the government's substantial tariff increase and consider suspending the interest rate cut cycle. Coincidentally, JPMorgan Chase also warned that if Trump wins on Wednesday, the Fed may suspend the easing cycle as early as December, and the bank expects to cut interest rates by 25 basis points in November. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-06 -
View detailsCan't be taunted or hid! In the face of Trump, the American business community is trembling.
As the US election has entered the voting stage, American business leaders are "trembling" about Trump's possible return to the White House, and they are preparing for his strong return. According to Axios News, Trump has made a list of CEOs and companies that he thinks have been unfair to him or supported his political opponents. This potential threat prevents business leaders from reaching out and being nice to Trump in case of retaliation. Washington post quoted a Trump consultant as saying: "If you supported Harris before and we never heard your voice before the election, then you will face a difficult battle." It is worth noting that although some CEOs may support Trump's tax cuts, in the past two decades, American business leaders have generally been more inclined to the left-wing position. Among the Fortune 100 companies, only one CEO, Musk, publicly expressed his support for Trump. Previously, some CEOs kept their distance from Trump because of the Charlottesville incident and the congressional riots on January 6, but now, few people are willing to maintain a tense relationship with Trump during his second term. Recently, Trump had a telephone conversation with Apple CEO Tim Cook, Google CEO sundar pichai and Amazon CEO Andy Jassy. In addition, he also had a dialogue with the executives of Jeff Bezos' Blue Origin Space Company. Mark zuckerberg, CEO of Meta, talked to Trump after his first assassination, and Zuckerberg described Trump's response to that attack as "tough". Wall Street is also preparing for Trump's possible victory, and hedge fund managers are turning to investing in stocks that are expected to perform better under the Republican government, such as defense, oil and cryptocurrency. Washington post, owned by Bezos, and The Los Angeles Times recently cancelled their support plan for Vice President Harris. Patrick Soon-Shiong, owner of the Los Angeles Times and billionaire biotech entrepreneur, said he thought that choosing only one candidate in a turbulent election year would cause differences. This time, the risk will be even higher, because Trump has "showdown" that he will attack business leaders who are at odds with him. In 2016, he lashed out at executives of media companies, Nordstrom and Amazon, and attacked Amazon's tweets, causing its share price to plummet. The analysis believes that even if the CEOs of big American companies are not fans of Trump, they don't want to be his enemies when Trump re-enters the White House. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-05 -
View detailsMorgan Stanley: the misunderstanding of "election transaction" that investors should avoid
Tuesday's US election is bound to be dazzling, and investors need some patience and planning to find their way in the noise, rather than getting lost in it. On Monday, November 4th, Michael Zezas, head of fixed income research at Morgan Stanley, published an article saying that in the face of this election, the main goal of investors should be to improve their understanding of the current market conditions and avoid overconfidence in the election results and related market impacts. To this end, Morgan Stanley proposed three strategies to help investors adjust their expectations: Wait patiently for the election results. In recent weeks, the market's expectation for the Republican Party to enter the White House has warmed up. Morgan Stanley said, "This is certainly possible, but we don't think it is the most likely result." At present, both candidates have not gained enough lead in many states. Considering that there are some deviations in the opinion polls, it is impossible to judge the election results at present. Moreover, Morgan Stanley believes that the long and noisy counting process in 2020 may be repeated. Although the postal voting (VBM) has decreased compared with four years ago, it is still high compared with the historical level, which may delay the counting of votes. In key swing states, the results of postal voting may gradually erase the seemingly stable position of the current leading candidate. Therefore, Morgan Stanley believes that it is best for investors to carefully observe the results and gradually adjust their expectations according to the constantly updated information, instead of jumping to conclusions. Be skeptical of popular views Many people can guess the election results, but few people can correctly guess the reasons behind them. Morgan Stanley said that to know which signals can predict the election results, it is necessary to compare the voter list with the opinion polls before the election, and it usually takes months to collect and analyze the data afterwards. Therefore, Morgan Stanley does not pay much attention to the results of the polls, nor does it agree with the view that "the polls are systematically biased towards the Democratic Party and will underestimate Trump's support rate again", because the errors of the polls are often symmetrical. In the past few elections, the polls also underestimated the support rate of the Democratic Party. Morgan Stanley said that the current data of polls and early voting are not reliable enough, and "it is unwise to distinguish it from noise." Don't over-interpret short-term market fluctuations. Morgan Stanley said that we should not over-interpret the short-term market fluctuations, but compare the current asset prices with the possible policy trends-the short-term market reaction after the election is often chaotic, but the subsequent public policies may promote the lasting trend. For example, the market has long believed that a Republican victory will lead the United States to impose import tariffs on Mexico, which will put pressure on the Mexican peso. The Mexican peso has depreciated significantly in the past few months, which is in line with market expectations. More importantly, due to the risks related to global trade policy (tariffs, negotiation of the US-Mexico-Canada Agreement, etc.) and the uncertainty of local policies, the Mexican peso is still bearish in the medium term. According to Matthew Hornbach, an analyst at Morgan Stanley, American debt is experiencing a similar situation. After the Republican Party won in 2016, the yield of US bonds rose sharply, probably because the market expected to introduce tax cuts, thus promoting economic growth and expanding the fiscal deficit. The Republican Party has also published a similar policy agenda in this election. Therefore, if the Republican Party wins the White House and the House of Representatives, it may push up the long-term yield of US debt. However, Morgan Stanley also pointed out that the short-term reaction of US bond yields in 2016 is less likely, because Trump's victory will not make the market too unexpected, and investors' expectations have been based on the market reaction after 2016, and the position of global monetary policy is obviously different from before. In terms of stocks, the sectors (finance, industry, etc.) that are considered to have benefited from Republican policies recently have performed well recently, while some stocks that are significantly related to tariff risks have performed poorly. Morgan Stanley said that if the Democratic Party wins, these recent market fluctuations may be reversed, but this should not be regarded as a signal of long-term macro expectations. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-04 -
View detailsHow will the Asian market respond to the return of a strong dollar? 6 trillion dollars of foreign exchange reserves as a shield.
As the dollar strengthened, Asian currencies came under pressure in October. The increasing possibility of Trump's return and the uncertainty of the Federal Reserve's monetary policy have further promoted the rise of the dollar. The data shows that the Asian currency index has experienced the worst month since February 2023, Indian Rupee is close to a historical low, and the Korean won hit a three-month low. In contrast, since September, the US dollar index has been climbing all the way. In October, the US dollar index continued to strengthen by more than 3%, which is expected to set the best monthly performance in more than two years. At present, the dollar index has fallen back. However, the analysis pointed out that Asia's foreign exchange reserves of $6.4 trillion provide investors with confidence, indicating that central banks have sufficient ammunition to deal with potential market turmoil. According to data from Bloomberg, the total foreign exchange reserves in Asia, excluding Japan, reached 6.4 trillion US dollars, an increase from 6.2 trillion US dollars at the end of 2023 and 5.9 trillion US dollars in 2022. China's foreign exchange reserves are remarkable, while Indian foreign exchange reserves have exceeded $700 billion, reaching a new high. Thailand and the Philippines also have abundant foreign exchange reserves, while Vietnam and Malaysia have relatively insufficient foreign exchange reserves. Strategists predict that the trend of non-US currency depreciation may continue if Trump comes to power again and triggers trade tensions again. However, the analysis of Barclays Bank and Mitsubishi UFJ Bank pointed out that the steady growth of foreign exchange reserves over the years has put central banks in a favorable position to stabilize exchange rate fluctuations. Mitul Kotecha, head of macro strategy for foreign exchange and emerging markets in Asia at Barclays, said: The continuous growth of foreign exchange reserves in Asia has given central banks sufficient intervention capacity. Although the market's expectation of Trump's victory has been partially digested, if this expectation comes true, Asian currencies will still face greater pressure. Michael Wan, senior foreign exchange analyst at Mitsubishi UFJ Bank, pointed out: Most countries in Asia have sufficient foreign exchange reserves, which provides a guarantee against market risks. Foreign exchange reserves are the first line of defense for most Asian countries, and the role of reserves is particularly important for those countries that pay attention to foreign exchange stability. The central banks of South Korea, Indonesia and other Asian countries promised that they were ready to intervene. In the face of the recent sudden weakening of Asian currencies, the central banks of Asian countries have promised to take active actions to deal with the fluctuations in the foreign exchange market. In the election-related uncertainty, the dollar may continue to strengthen, and Asian officials remain on high alert. The Bank of Korea has promised to take prompt action to curb the excessive fluctuation of the won, and the Bank of Indonesia has also indicated that it is ready for market intervention. The governor of the Bank of India emphasized that foreign exchange reserves are a "safety net" to deal with the instability of capital flows. In China, foreign exchange swap has gradually become an important tool for state-owned banks to support RMB. At the same time, Malaysia's central bank encourages its state-owned enterprises to repatriate overseas investment income and convert it into local currency. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-11-01 -
View detailsThe Federal Reserve cut interest rates sharply. Why did mortgage interest rates "not fall but rise"?
Since the Federal Reserve announced a 50-basis-point interest rate cut on September 18th, mortgage interest rates has been "rising instead of falling", which has surprised many market participants. Since September 17th, the yield of 30-year mortgage-backed securities (MBS) has soared by 84 to 96 basis points, and that of mortgage interest rates has increased by 72 to 89 basis points. At the same time, the yield of medium and long-term government bonds has only increased by 53 to 67 basis points. Tom Lawler, a real estate economist, believes that there are two main reasons why the increase of MBS and mortgage interest rates exceeds the yield of government bonds. First, the implied volatility of US Treasury options surged. After the Fed's interest rate decision, a series of strong economic data and slightly higher inflation data exceeded expectations, which "caught market participants off guard". For example, the BofAML MOVE index, which tracks the implied volatility of the one-month US Treasury option market, rose from 101.58 on September 17 to 130.92 on October 28, setting the highest level since October 30, 2023. The analysis points out that the increase of implied volatility means that the uncertainty of future interest rate changes in the market is increasing. When interest rate volatility rises, borrowers are more likely to choose to repay in advance (or they may want to refinance at a lower interest rate when interest rates fall). This kind of risk leads investors to increase the risk premium when pricing loans, so as to compensate the losses caused by borrowers' prepayment. Secondly, it involves the option-adjusted spreads (OAS) of mortgage-backed securities (MBS). OAS refers to the difference between the yield of MBS and the yield of risk-free treasury bonds, which is adjusted to consider the influence of early repayment and other behaviors, reflecting the extra income required by investors to compensate the risk of MBS. Before the Federal Reserve cut interest rates sharply, OAS was at a low level, which was usually considered as the normal range without the intervention of the Federal Reserve. However, after the Federal Reserve cut interest rates, due to the higher expectation of interest rate fluctuations in the market, the risk of early repayment of borrowers faced by investors increased, which led to an increase in OAS, and investors needed higher yields to make up for potential losses. Notably, Lawler said that the 30-year mortgage interest rates may be re-evaluated. This is taking into account the normal yield curve and the normal spread from the yield of 10-year treasury bonds to that of 30-year mortgage interest rates, and his assessment that the best expectation of neutral real interest rate in the United States should be between 1.75% and 2%, he added: "Of course, inflation/inflation expectations need to be added to this range. When the Fed achieves its 2% inflation target, the neutral interest rate will be 3.75% to 4%. " Lawler also believes that in the absence of recession or crisis, a 30-year mortgage interest rates of 6% to 7% may become the new normal. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.
2024-10-31