Macroeconomics: Market Keywords In 2016

How many people can think of it before, that oil prices fell to 30 downstairs from 140 US dollars per barrel? Will the A share market ride the roller coaster? The people's Bank of China has changed the exchange rate formation mechanism to trigger the global stock market crash. If the Federal Reserve's normalization procedures over the years are likely to end up with one interest rate, will the sudden negative interest rate policy of Kuroda Higashihiko only make the yen depreciate and rise in a day?

Over the past 12 months, market sentiment has been greatly overjoyed, risky asset prices have been extremely volatile, monetary policy is hard to grasp, and politicians' commitment to reform seems to be fading away, and real economic growth is more like a dream.

Uncertainty has occupied the central stage of the market, and capital has to climb the risk curve for the sake of income. Investors are looking for rewards in the wrong direction. QE has already used the old way, and the demand recovery is still inconclusive. The central bank has to change, but policy pparency is getting lower and lower.

2015 is painful, and 2016 may be more painful.

No matter how busy or empty it is, it will be painful, because the problem lies in the accumulation of risks and the opacity of policy, which is reflected in the market price is the word "impermanence" two words.

The author believes that in 2016, the understanding of "impermanence" and the application of corresponding strategies are more important than analyzing growth, policy, exchange rate, valuation and capital flow.

Because of the great divergence of monetary policy, the uncertainty of capital flow is very high, and the imbalance of some countries, industries and assets is rather serious.

The background of the global economy in 2016 is that the economies of various countries are still at a standstill, and the US has also seen a drop in growth. The unconventional monetary expansion policy, which began in 2009, has been at the end of the battle. The central bank has tried to change the trend, and the negative interest rate has become the main theme. However, the policy effect and the market communication ability of the central bank are facing challenges.

The author believes that in 2016, compared with 2015, the growth rate was slower, inflation was not strong, and the cost of capital dropped further, and the exchange rate war was popular.

The source of these four characteristics is that the economic recovery is always pointless and needs no improvement.

Beginning in the 90s of last century, the IT revolution and China became the world's processing plant. The whole world experienced a super boom period. The long term easing policy of the central bank and the drop in the cost of capital under the derivative products further lengthen the economic expansion cycle, and even lead to many imbalance and dislocation.

The financial crisis in 2008 brought pain and brought about opportunities for reform and reversing imbalances.

However, politicians from all over the world can not break through in the face of interests, reform has not been able to advance in any way, but only through unconventional monetary policy.

The QE policy has greatly improved asset prices, but it has failed to produce sustainable growth.

For many years, QE has made zero risk (or negative income) of zero risk assets. On the other hand, it has squeezed liquidity into the risky asset market, resulting in high valuations. At the same time, the central bank almost has no cards to go out, but the economy is once again facing the dilemma of recession.

At present, the uncertainty we see is actually a reflection of the formation of these factors. The development of the central bank's exchange rate is actually an attempt by a skilled woman to make bricks without straw. The extreme turbulence in the market now and then is actually anxiety about many difficulties.

I believe these will continue to ferment this year.

The global economic growth in 2016 is expected to be 2.5%, unchanged from last year. The actual feeling may be worse than this figure. The US, EU, China and Japan economies have further declined, domestic demand is insufficient, and trade has not been seen.

In fact, most countries do not see their inherent growth except the US. They only rely on the illusion of liquidity caused by currency expansion to create a GDP figure on paper.

With the US economy down, global growth is even more difficult this year.

The difficulty of growth is the source of market turbulence and the thorny part of policy makers.

However, I do not see the US in recession at present, but the growth momentum is slowing down.

I also do not agree that China will have a hard landing this year. It is just that corporate profits and bank bad debts may be more ugly than GDP growth.

In the face of the shadow of deflation, it is believed that all major central banks will have further actions in monetary policy, but the differences in policy content and timing will become bigger and bigger.

The Central Bank of Europe and Japan have chosen the negative interest rate policy as the flagship of the next easing measures, but this policy has limited stimulating effect on the real economy and has side effects on bank profitability.

The author thinks that the European Central Bank will add more risky assets to the purchase list, and the scale of asset purchases may be further increased.

The Bank of Japan has bought almost all Japanese bonds, and it seems inevitable to move from QE to QQE.

China will start with a loose fiscal and neutral monetary policy. However, if the pressure of economic downturn increases, it will not rule out the easing of the people's Bank's refunds, nor will it exclude the exchange rate policy. However, the RMB exchange rate has little chance of slowing down the US dollar slowly.

American

The policy uncertainty is large.

Recent weak figures and the performance of the bond market are a blow to the confidence of the fed in raising interest rates, but the open market committee has not yet given up the roadmap for raising interest rates, but the timing and intensity of implementation need to be closer to the data and economic situation (especially employment data and wage growth).

I expect that the US monetary authorities need to reconsider the situation before deciding whether to raise interest rates again, so the moratorium on interest rate hikes may be maintained until September this year.

At present, Yellen has not given up the interest rate increase process and is just adjusting the intensity. But if the employment data continues to slow down, Washington will not stick to its own views, especially when the election cycle is coming to an end. The political pressure of the Federal Reserve may have been relieved.

At present, according to the author's opinion, the pressure of wage rise in the American employment market is still high, and it puts psychological pressure on the decision making layer. It is expected that the Federal Reserve will start raising interest rates again in September, which will add two times this year.

Although the US dollar is temporarily under pressure, I believe that the strength of the US dollar has not changed, because there is no other big economy in the world that can achieve real growth, nor can we find another big central bank without competitive devaluation.

The current US dollar weakness is merely a reassessment of the normalization of the monetary environment of the Federal Reserve.

Recently, commodities have gone through a strong trend, which is driven by liquidity in the emerging market and the setback of the dollar.

From China's capacity to stabilize the RMB exchange rate, serious oversold commodities should be benefited, and replenishment is also the driving force for short-term steel price pulling.

However, at present, the author does not see the obvious improvement of terminal demand, and the price rise without terminal demand is also difficult to sustain.

The downward cycle of commodities generally has a 5-7 year process, and the process of capacity production will continue, and demand recovery is not yet viable.

Oil prices have fallen further than commodities.

This is related to the development of Russia and Iran, and also to the failure of oil producing countries to reach agreement on capacity control, and also to the Global Fund's short selling of oil.

With oil prices below $40, it's hard to analyze the fundamentals.

The trend is not easy to predict, but the crowded trade must be turbulent.

Gold has been doing well this year, which is a reflection of the risk aversion of capital under extreme turbulence.

When the economic and policy uncertainties increase, gold has more room for fluctuation. When more and more risk-free assets return to zero, the weakness of gold's return is not so prominent.

But as long as the world does not see inflation rebound, the gold bull market is hard to reproduce.

The chance of black swan incident broke out in 2016, from junk bond market.

The default is that the energy companies are closing down, from the oil producing countries' financial crisis to the oil dollar selling assets, from the emerging market crisis to the bad loans of banks.

A short dollar weakness and a rebound in commodity prices may not relieve the risk alarms of serious imbalances.

As for the unknown, I don't know. Only when growth stagnation, policy swings, people's weakness and high valuations, it is necessary to raise risk awareness.