U.S. Inflation "Breakout" in March
In recent months, inflation data has become the key to guiding financial market expectations and assessing the Fed's inflation response. On Tuesday evening, the U.S. Bureau of Labor Statistics released data showing that the U.S. CPI increased by 8.5% year-on-year in March, and the growth rate accelerated again, the fastest growth rate since December 1981. This is the 22nd consecutive month that the CPI has risen. Commodities Inflation actually fell month-on-month, while energy prices soared.
After the U.S. CPI data in March was released, the pre-market sell-off of U.S. bonds was reversed, and Treasury bond yields fell. The U.S. 2-year Treasury bond yield fell by 10BP at one point, and the U.S. five-year Treasury yield fell to more than 10BP. Spot gold rose over short-term USD10. Given gold and silver's long history as an inflation hedge, higher-than-expected headline U.S. CPI data could bring gold closer to the psychologically important $2,000/oz level.
In the short term, the March CPI data will largely affect the Fed's decision to raise interest rates at the May meeting. The rising inflation data has increased the pressure on the Fed to continue raising interest rates this year to deal with inflation, and has also strengthened the Fed's decision to raise interest rates. Market expectations for a 50 basis point rate hike next month.
A survey by the New York Fed earlier showed that consumers' median inflation expectations for the next three years fell to 3.7% last month from 3.8% in February. However, median inflation expectations a year from now surged to 6.6% from 6% in February. That will put pressure on Fed Chairman Jerome Powell and other officials.
Of course, in order to make the market mentally prepared, the White House has also taken a "vaccination" early. The White House press secretary said on Monday that inflation in the United States is expected to be "abnormally high" in March, blaming it on the situation in Russia and Ukraine. The resulting energy costs have risen sharply.
The phantom of economic recession emerges
What is even more worrying is that, under the shock of high inflation, the risk of a global recession is rising. A combination of reasons is making the possibility of a global recession increasing, including the recent surge in commodity prices caused by the outbreak of the Russian-Ukrainian conflict, inflation in the United States reaching the highest level in more than 40 years, and the spread of a new wave of epidemics around the world.
The global economy, which once rebounded as countries reopened after coronavirus lockdowns and a series of economic stimulus measures by governments, is now running into headwinds again, according to a Bloomberg survey in April. The average forecast for U.S. economic growth was 3.3%, before lowering expectations to 2.2%.
Currently, the risk of inflation dragging the economy into a recession is building. A growing number of economists are unanimously predicting a contraction in economic activity, either because consumer spending falls in response to higher prices, or because the Federal Reserve is "overcorrecting" in tackling inflation.
As the Fed embarks on what is expected to be the most aggressive tightening cycle since 1994, the bell to warn of a U.S. recession is getting louder. The Fed's intention to curb the worst inflation in 40 years through monetary tightening will threaten economic growth.
Recently, U.S. bond yields have inverted twice. As one of the most concerned economic recession forecast indicators in the market, the inversion of U.S. bond yields and interest rates has made investors worry that the U.S. economic recession is expected to advance.
In the past 30 years, the two-year and 10-year U.S. Treasury bond interest rates have inverted five times, which occurred in 1988, 1998, 2000, 2006, and 2019 respectively. These 5 inversions correspond to 5 famous crises, of which 3 occurred in the United States (the savings and loan crisis in 1990, the Internet bubble in 2000, and the financial crisis in 2008), and 1 occurred in Asia (the Asian financial crisis in 1998). 1 occurrence in the world (20 years of new crown epidemic).
The current U.S. economy is facing triple pressures of weakening fiscal support, inflation eroding household income and consumption, and falling residential and industrial investment. The probability of the economy entering a recession next year increases. If exogenous conditions deteriorate further (too fast rate hikes to shrink balance sheets or higher oil prices for longer than expected), the recession could be brought forward to the beginning of this year
The strength of the dollar hides a mystery
Recently, the US dollar index has once again stood at 100, which is the first time that the US dollar index has exceeded 100 since the US dollar index fell below 100 on May 16, 2020. The basic reason for the strength of the US dollar index is that the US monetary policy is stronger relative to the expectations of the speed and intensity of monetary policy tightening of the economies in the US dollar index.
Historically, when the U.S. dollar index stood at $100, commodities represented by crude oil performed the best; the stock market performed flat, especially when the yields of the U.S. dollar and U.S. bonds rose together; However, there is a logic behind this round of gold price rises to trade the US economic recession, and gold prices may show more volatile characteristics.
Considering the Fed’s multiple interest rate hikes and balance sheet reductions this year, and the non-synchronization of the monetary policy cycles of the U.S. and the U.S. dollar index, the strengthening of the U.S. dollar has a certain continuity, and the continued operation of the U.S. dollar index at a high level will exert continuous pressure on gold prices. .
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Indonesia
2022-04-13
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