The Federal Open Market Committee of the Federal Reserve announced on January 30 that it would keep the federal funds rate between 2.25% and 2.5%. The Federal Reserve said it would ” assess the future policy direction more patiently” and deleted the phrase ” continue to raise interest rates gradually” from the statement of the meeting, saying ” keep sufficient reserve assets and use all policies including the balance sheet when necessary”. This shows that the Federal Reserve is more dovish in raising interest rates and shrinking its table.
The Federal Reserve has raised interest rates nine times since it started raising interest rates in December 2015. The rise in US dollar interest rates has led to the repricing of global assets and a large number of US dollars are beginning to flow back to the US market. During this period, the U.S. government also implemented a large-scale tax reduction policy for enterprises and individuals, improving the profit-making environment for enterprises. The outflow of capital has triggered sharp fluctuations in asset prices in emerging markets including China, and the A – share market has also experienced a revaluation of US dollar return.
The Fed’s suspension of interest rate hikes at least reflects a change in the Fed’s expectations of the strength of the US economy. Based on this expectation, postponing the process of raising interest rates and reducing the balance sheet will be good for emerging markets, and the worst time of the capital environment may have passed.
At the same time, the domestic monetary environment is also improving. In 2018, the central bank implemented four targeted downgrades, three increases in refinancing and rediscount quotas, and proactively hedged downward pressure on economic growth and slowing credit growth. After 2019, the People’s Bank of China has decided to reduce the deposit reserve ratio of financial institutions by 1 percentage point, making liquidity in the banking system more ” reasonable and abundant”. At the same time, China’s deleveraging has achieved initial results and has entered the stage of stabilizing leverage. Keeping the macro leverage ratio basically stable has become one of the important tasks of the central bank and other departments.
The latest data also show that both manufacturing and non-manufacturing PMI rebounded in January, among which the business activity index of service industry rebounded significantly, indicating that the economic operation showed signs of stabilizing. The PMI for January was 49.5, slightly higher than last month’s 49.4, and the data is still low, but its important significance is to help improve the pessimistic expectations of the market and stabilize the worries of the market that the boom index will continue to decline after falling below the boom-bust line.
In addition, as the amount of local bonds has been issued in advance in 2019, the scale of issuance in January exceeded 400 billion yuan. With the arrival of the new peak season after the Spring Festival, the economic data is expected to continue to improve and the worst phase of economic fundamentals may be over, driven by the increase in infrastructure investment and the landing of a broad credit policy.
Another benefit comes from the market itself. Before the Spring Festival, problems such as impairment of goodwill in A shares broke out, causing the market to be disturbed by short-term factors and investor sentiment to be hit to a certain extent. However, the impact of these factors on the market is a short-term disturbance brought about by the performance forecast system. With the end of the performance forecast, the impact basically ends. At the same time, this ” thunder storm” is mainly focused on small and medium-sized enterprises. If these listed companies can travel lightly after making a substantial provision for impairment, their profitability will probably improve on the basis of the previous low base, which will support the stock price.