Xu Yaxin: The Fed Left To The Right Bank Of Europe

The European Central Bank and the Federal Reserve are just like a couple going to a crossroads, and eventually diverged from each other because of their different family missions. So the ECB and the Federal Reserve. monetary policy The opposite is inevitable.

The real time node of "emotional breakdown" began when the ECB unexpectedly lowered interest rates by 25 basis points to 0.25% on 07 November 2013, and the Federal Reserve began to reduce quantitative easing in December 18, 2013.

　　 The Fed moves to the right.

The United States carried out drastic measures after the subprime mortgage crisis. Rate cut From September 18, 2007 to December 27, 2008, the benchmark interest rate was lowered from 5.25% to 0-0.25%. When the Fed's official benchmark interest rate is not allowed to fall, smart Americans are very selective in quantitative easing (QE).

The Federal Reserve officially launched the first round of quantitative easing in November 15, 2008 and expanded the QE1 scale in March 18th. During this period, the Federal Reserve bought Fannie Mae, Freddie Mac, the Federal Housing Loan Bank and real estate related direct debt, and bought Mortgage Backed Securities (MBS) guaranteed by two houses and the Federal National Mortgage Association. The first round of quantitative easing is as high as 1 trillion and 725 billion dollars, which is also the most darkest stage in the whole financial crisis.

The Federal Reserve officially closed its first round of quantitative easing in March 31, 2010 and entered a period of economic observation for about half a year, and officially launched the second round of quantitative easing in November 3, 2010. During this period, the main purchase was long-term treasury bonds. In essence, it hopes to increase the amount of basic money to solve the financial crisis of the US government. The second round of quantitative easing has reached US $600 billion. If QE1 is to transfer the corporate debt to the federal government, the purpose of QE2 is actually to ease the government's debt problem.

At the same time, because of the excessive expansion of the Federal Reserve's balance sheet, if the long-term yield of the US Treasury bonds soars, it will inevitably bring the risk of debt default to the government, so the Federal Reserve launched the so-called twist operation (OT) after the end of the QE2 in June 30, 2011. The aim is to buy long-term treasury bonds by selling short-term treasury bonds, thereby reducing long-term financing costs.

Finally, the Fed opened QE3 and QE4 in September 14, 2012 and December 12th respectively. The size of the period was $85 billion a month. With the recovery of major US economic indicators, the Fed also began planning to withdraw from quantification. In December 18, 2013, it formally announced its withdrawal from QE3 and QE4, reducing the purchase size to $75 billion per month.

Looking ahead, Federal Reserve It is very likely that the QE3 and QE4 will be completely withdrawn from this autumn, and will soon start a new round of interest rate hikes in the summer of next year. According to the last round of reference from the Fed's interest rate cycle, there will be at least twenty interest rate increases in the US Federal Reserve. From June 30, 2004 to June 30, 2006, the Federal Reserve raised interest rates seventeen times, raising 25 basis points at a time, and eventually raising the benchmark interest rate from 1% to 5.25%. That is why many investment banks and institutions in the market have been judging the most important reason for the US dollar to start the era of better rising since the beginning of this year.

　　 Euro silver left

In a recent report, Deutsche Bank pointed out that 10 basis points and a SMP write off were almost entirely priced in the market. If the European Central Bank provides liquidity to the market by 200 billion euros through ABS or LTRO, the deposit rate will be reduced by 15 basis points. These markets are not fully priced. If these actions are taken, this is equivalent to a 5-15 basis point cut in interest rates again, when the euro / dollar will fall to 1.34/35 level.

As a matter of fact, I remember very clearly that when the Federal Reserve was cutting interest rates to deal with the subprime mortgage crisis, the whole European Central Bank was still quarrelling against the so-called "inflation". Finally, under the background of the European debt crisis, it was forced to choose the easing policy. It should be said that Delaki is at risk. Whether it is good luck or good policy, the objective fact is that the whole eurozone is recovering steadily. Therefore, at present, the easing of the European central bank can be seen as a sequel to the Federal Reserve. Eventually, the European Central Bank will start tightening as the Fed does today.

However, before the arrival of the beautiful tomorrow, the trend of the euro will soon be faced with a severe test. The "negative interest rate on deposits" that the European Central Bank will adopt is nothing to exaggerate, but at least smart America has not done so. Historically, Denmark and Sweden both tried negative interest rates, which eventually led to a significant devaluation of the country's currency (which was what Denmark and Sweden would like to see at that time). But both Denmark and Sweden are small rich countries in northern Europe (in short, a province in China). The population density of these countries is relatively low, the level of economic development is very high, life is very rich and the social welfare security system is perfect. As a result, the negative interest rates taken by the Danish and Swedish central banks are not a quantitative level with the European Central Bank, and the final impact can not be assessed and expected.

Perhaps the only thing we can do is to remain steadfast in the short term and remain unchanged. The middle line will continue to hold the euro / dollar shorts and fasten the seat belts.