Short Term Factors Push Up CPI Asset Bubbles Larger Than Stagflation Risk

The ECB lowered the overnight deposit interest rate by 10 basis points to -0.4%, meeting expectations; lowered the main refinancing interest rate by 5 basis points to 0, expected to maintain the same level of 0.05%, reduce the overnight lending rate by 5 basis points to 0.25%, and expect to maintain 0.3% unchanged; from April, it will expand the QE scale to 80 billion euros; expand the scope of purchase to non bank corporate bonds, and exceed the limit.

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Since June 2016, the long term directional refinancing operation (TLTRO II) has been implemented for a period of four years.

Comment:

1) the core point of view: interest rate determines market expectations, forming monetary dependence, which is not conducive to economic improvement.

After the release of the interest rate resolution, the euro's sharp fluctuations first fell and then rose, mainly due to the easing expectations and Delagi's no need to see any further interest rate cuts.

Europe's Stoxx50 rose slightly, and the US stock jumped to a higher level; the yield of the German 10 year treasury bond fell by 7 basis points; the yield of the US 10 year treasury bond fluctuated slightly; the US dollar index rose first and then fell, leading to a rise in commodity prices and a 1% rise in gold; the decline in crude oil prices was mainly influenced by the expected disagreement between OPEC and non OPEC negotiations, and the short-term stability of the RMB was maintained.

In the long run, the formation of monetary dependence in the eurozone is not conducive to economic improvement, and the way out is structural reform.

2) interest rate resolutions and the main contents of the conference: 1) reduce the overnight deposit interest rate by 10 basis points to -0.4%; reduce the main refinancing interest rate by 5 basis points to 0; reduce the overnight loan interest rate 5 basis points to 0.25%.

2) from April, it will expand the QE to 80 billion euros; expand the scope of purchase to non bank corporate bonds.

Since June 2016, the long term directional refinancing operation (TLTRO II) has been implemented for a period of four years.

3) the euro area GDP is expected to grow by 1.4% in 2016 and 1.7% and 1.8% in 2017 and 2018 respectively.

4) reduce inflation expectations.

The expected average inflation rate in 2016 was 0.1%, which was originally expected to be 1%. The downward trend in 2017 was expected to be 1.3%, with an original forecast of 1.6%.

3) the euro area economy has formed monetary dependence. It has been proved that the role of money is very limited, and the way out for the future is structural reform.

Since the European Central Bank decided to implement the QE in December 2014, the euro zone economy has recovered, but the intensity of the recovery has gradually declined.

The PMI index has started to turn around after it has gone up.

In February, PMI was 51.2 and the former value was 52.3.

Moreover, interest rate cuts will further reduce the profitability of traditional credit business in the European banking sector.

The fundamental problem of the euro area economy lies in the fact that the absolute number of working age population is declining and the aging problem is serious.

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Money is the stimulus of aggregate demand, not only can not solve structural problems, on the contrary, it can only push up asset price bubbles, and the final result is very uncertain.

The euro area PPI in January was -2.9% compared with the previous year, with the expected value of -2.9%, the former value of -3.0%, and the euro area CPI in February, compared with -0.2%, which is expected to be 0%.

Risk warning: Britain's withdrawal from Europe; the Fed raises interest rates.

4) the impact on China: the renminbi may appreciate slightly, and its impact on China's exports is limited.

Compared with the rise in domestic wages, the impact of exchange rate on exports is weak.

In the past 2014-2015 years, the effective exchange rate of RMB has appreciated by 8%, though China

The growth rate has declined, but China's export market share is rising, from 12% to 14%.

Keeping a close eye on the crawling exchange rate system, we should pay more attention to the wishes of the central bank in the short term.

The dollar index is down, and the renminbi may appreciate slightly.

The short-term stability of the RMB will continue to be maintained, and the slight two-way fluctuation will depend on the anticipation of reform and improvement of China's economic growth in the long run.