Market pressure is too high, global economy is in a state of caution

[The Bank of England is expected to raise interest rates for the last time in March]

A Bank of England official's speech to the Treasury Committee of the British Parliament on Thursday suggested that the Bank of England's interest rate hike cycle may be coming to an end soon. The message from Bank of England officials was "generally more dovish than before", and the Bank of England may raise interest rates by 25 basis points for the last time in March, to a high of 4.25%. The fact that markets remain concerned about inflation momentum suggests there are upside risks to this view, especially if labor market data remains tight.

[The Federal Reserve will conduct a bank stress test in March, including a global recession scenario]

The Federal Reserve released its first bank stress test scenarios for 2023, which include high levels of stress in commercial and residential real estate markets, as well as a global recession and housing market shock. The test will also include new "exploratory market shocks" for the eight largest banks, which will better inform the Fed about the resilience of large banks. Testing will take place at the end of March.

[The number of Americans claiming unemployment benefits rose for the first time in 6 weeks]

The number of Americans filing for unemployment benefits rose for the first time in six weeks but remained at record lows, underscoring the resilience of the labor market despite rising economic uncertainty. Initial claims for state unemployment benefits rose by 13,000 to 196,000 in the week ended Feb. 4, according to data released by the U.S. Labor Department on Thursday. Continuing claims for unemployment benefits rose to 1.69 million, including those who have been receiving unemployment benefits for a week or more. The U.S. labor market remains firm amid the Federal Reserve's most aggressive tightening in a generation. While layoffs are increasingly spreading beyond tech companies, many businesses, especially small ones, are struggling to hire while others are retaining workers they've fought so hard to win.

[The U.S. dollar has entered a long-term depreciation period]

The dollar will be weaker than ever and has entered a long period of depreciation. Given the more resilient global growth and the hawkish turn of some foreign central banks (notably the European Central Bank and the Bank of Japan) in recent months, the market believes that the dollar has entered a prolonged period of depreciation. In the short term, the depreciation of the dollar is expected to be gradual as the U.S. economy slides into recession and the Fed is reluctant to cut rates prematurely. The depreciation of the dollar is expected to accelerate in 2024 on the belief that the Federal Reserve will start cutting interest rates sooner than foreign central banks.

[The Riksbank is unlikely to intervene in the foreign exchange market in the near future]

The recent weakness in the Swedish krona has fueled speculation that the Riksbank may intervene in currency markets to boost the krona, but this is unlikely to happen anytime soon. First, the Riksbank's foreign exchange reserves are still limited; second, at Thursday's meeting, the Riksbank has taken other steps to boost the krona, such as saying a stronger currency is desirable, guiding the market to higher interest rate peaks, and starting to Issue government bonds explicitly linked to backing the krona. With the measures currently boosting the Swedish krona, the Riksbank is unlikely to threaten to intervene, he said.

[The European Central Bank believes that the market is too optimistic about inflation and policy responses]

Deputy President of the European Central Bank Guindos continued to make hawkish remarks yesterday, pointing out that the market may be too optimistic about inflation and does not rule out the possibility of further interest rate hikes after March. As can be seen from the inflation swap curve, the market expects inflation to fall rapidly, with 1-year inflation swaps currently trading around 2.70%. There are upside risks not only to inflation, but also to the ECB's interest rate outlook, supporting the market's view that the market is pricing in a terminal rate of 3.50% that is too low. Current market pricing shows a 25% chance of a 50 basis point rate hike in May, and the market believes the probability will reach at least 50% before the March meeting.

[Experts: Be wary of the risk of excessive RMB appreciation]

Tu Yonghong, dean of the Yangtze River Economic Belt Research Institute of Renmin University of China and deputy director of the International Monetary Institute, pointed out in an article in the Economic Daily that we should be highly vigilant against abnormal fluctuations in the RMB exchange rate, strengthen guidance on market expectations, and prevent excessive appreciation of the RMB , to create good conditions for the steady development of trade. Strengthen the supervision of cross-border capital flows, ensure the legal compliance of cross-border capital flows, coordinate the regulatory policies and measures of the central bank, the foreign exchange bureau, the China Securities Regulatory Commission, the National Development and Reform Commission and other departments, and crack down on illegal capital inflows. In particular, strengthen the coordination of monetary policy and macro-prudential policy, innovate and flexibly use policy tools, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. Adhere to the principle of giving priority to the local currency, give full play to my country's advantages in the industrial chain supply chain, the unified national market, etc., increase the voice of RMB pricing and settlement, focus on expanding the scope of bulk commodities and e-commerce RMB settlement, and improve cross-border trade RMB pricing and settlement. The ratio can effectively reduce the adverse impact of exchange rate fluctuations on trade.