After This Round Of Double Down, Monetary Policy Will Enter The Wait-And-See Stage.

The change of repo rate generally focuses on fixed interest rates, and few adjustments are made in the case of only reducing interest rates. Therefore, even if the future reduction is mainly due to liquidity hedging, the repo rate will fall into a phased bottom after this downward adjustment.

In the future, unless credit shrinks again, or real estate sales will decline sharply, 7 days will be lost.

It's hard to keep below 2%.

The rebound in the stock will not end because of the good cashing of the double fall.

The current increase is only small cap stocks, valuations of large cap stocks are still relatively low. Once the trend of economic improvement is established, there will be a round of valuation recovery of large cap stocks.

In addition, the bond market has not yet been adjusted, indicating that a large amount of capital is still deposited on fixed income products. With the decline of financial returns, the trend of capital from fixed income to equity has just begun.

First, the rise in the growth rate of financing means the need for monetary policy to continue easing.

What kind of interest rate is reasonable? Financing can rise, indicating that the relationship between supply and demand of funds has entered the turning point.

Referring to the pace of monetary policy in the past, the central bank also values M2 or social financing data. When the growth rate of social and economic growth has been rising for 3-4 consecutive months, the central bank usually will not cut interest rates or reduce the rates again, and the repo rate will also hit the bottom.

In fact, this year's repurchase rate was the lowest in the two quarter, which was also the bottom of the financing growth.

Second, if China wants to complete its economic pformation, it is not advisable to blindly reduce interest rates. Keeping the appropriate interest rate level will not only prevent the risk of a hard landing, but also force enterprises to go bankrupt in an orderly way and clear excess capacity.

In 96-02, China was also in the cycle of deflation and interest reduction. The rate of interest rate cut was faster and larger than 99 years ago. After the nominal interest rate has been low, the frequency and amplitude have slowed down significantly, and the real interest rate has been maintained at a relatively high level.

In the future, even if the economy continues to deteriorate, it will be difficult to rely solely on monetary policy. We must increase financial support, such as over issuing treasury bonds and reducing taxes.

Third, although CPI remains below 2%, inflation expectations for households will grow if housing prices continue to rise as lending rates fall.

Continuing to relax and increase the concerns about asset prices will increase.

Fourth, with the narrowing of the interest rate gap between China and the United States, exchange rate constraints on interest rate policy will become more and more obvious.

The US delayed interest rate hike in September was mainly caused by China's economic slowdown.

After the recent risk appetite recovery, the possibility of us raising interest rates will rise.

Although the rate of increase in interest rates will be limited in the future, the pressure of capital outflow will increase significantly if the interest rate gap between China and the United States is reduced to less than 100bp.

Of course, interest rate policy is fundamentally determined by the domestic economic situation, but it will be affected by the interest rate cycle in the US dollar.

The future downside of long term debt yields depends on whether the term spreads can continue to shrink. At present, the great resistance comes from the fact that Shibor remained above 3% in 3 months and did not follow the decline of the 7 day repo rate.

Historically, the yield of 10 - year treasury bonds has effectively fallen below 3%, only three times, in 2002, 2005 and 2008 respectively. At that time, 3 months Shibor or the same period repo rate was around 2% or below.

Short term strong demand for configuration remains an effective support for bond formation, but rising stock market is the biggest risk.

Once the Shanghai Composite Index stands at 3500 points, it may enter an accelerated phase. With the continued fall in financial returns, residents will refinance their money from the financial sector to the stock market. At that time, bonds will face greater adjustment pressure.

Judging from the gradual improvement of the fundamentals of the economy in the next 2-3 quarters, I believe that the bull market for two years will come to an end, and the concussion will be the main shock before the middle of next year, though there has been no change in the long-term bull market.