The Latest Trend Of Monetary Policy Has Become The Focus Of Market Attention.

The British referendum as one of the most important political and economic events in the first half of this year is a bargaining chip of the conservative British government to the European Union, but it is a pity that it failed.

It can be said that with Teresa May becoming the new Prime Minister of the UK, the uncertainty on the political level of the euro incident has come to an end, but the economic impact is gradually being fermented. The investors in the market are paying close attention to the uncertainty brought about by the global financial market, especially the three central bank interest conference is about to take place. The latest trend of its monetary policy has become the focus of the market.

The global impact of the event can be seen from two angles: short term and long term: the short-term financial crisis is triggered by the huge fluctuation of global stock market, foreign exchange market and derivatives market due to the rapid change of market expectations.

In the long run, it is a challenge to London's challenge as a global financial centre, its impact on the trade pattern in Europe, and the serious setbacks in the European integration process.

For Britain, where the euro took off, expectations of interest rate cuts have long been booming.

But in July 18th, Martin Will, a member of the MPC, said that he could not decide whether to support the interest rate cuts at the central bank meeting next month, in July 18th.

Martin Will said that the impact of the referendum on Britain's return to Europe is uncertain, which means that more clearly and forceful evidence needs to be seen before adjusting the policy.

Prior to July 14th, the interest rate meeting held by the Bank of England Monetary Policy Committee announced that the Bank of England will maintain the benchmark interest rate unchanged at 0.5%, and maintain the scale of asset purchase plan unchanged at 375 billion pounds, not as widely expected as the first rate cut in more than 7 years.

This shows that the short-term impact of the euro incident on the UK has come to an end, and the impact on the global medium and long term is currently in the observation stage of the major central banks.

Since the 2008 financial crisis, the central banks have implemented quantitative easing monetary policy in different degrees. The bottom economy is different, but the effect is not the same. But one thing is for sure. The worst is over. Now the central banks are considering how to protect their economies from the mire and enter the normal economic development as soon as possible.

Therefore, the latest developments in the interest rates of the three central banks are of particular concern.

For the eurozone, Europe is now in deep mire.

Not only are there more worries, but the most immediate difficulties lie in the impact of Europe's already weak financial system on the banking sector.

It is estimated that, in the next 3 years, the euro zone's economic growth will drop by 0.3 to 0.5 percentage points as a result of Europe's departure from Europe, which will hurt the European debt crisis which has been dragging the EU.

This new injury is likely to collapse.

The last straw.

Since the implementation of the negative interest rate policy by the European Central Bank, the profitability of European banks has been seriously affected.

Deutsche Bank, a representative of European banks, has 19% of its revenue from Britain, and Deutsche Bank failed to pass the Fed stress test in June 30th.

If the European economy can not get out of the doldrums and continue to deteriorate, Deutsche Bank will be the most unstable link in the European banking system, which will trigger Domino effect and lead to systemic risks.

Therefore, in order to save the banking industry, the European Central Bank has to increase its intensity.

In the long run, the European economic outlook will suffer a negative impact.

In 2016, the economies of the euro area countries remained undeveloped, and the quantitative easing policy did not improve. The slowdown in the UK's growth rate after the euro would have a negative spillover effect on the world and aggravate the hardship of the international economic environment. The eurozone may again face a new round of economic crisis.

Therefore, whether for short-term rescue of banks or long-term economic recovery measures, the European Central Bank is likely to expand its easing policy at the July Conference on interest rates: to pursue a further negative interest rate policy or to increase the size of QE.

At present, the US economy is a weathervane of the global economy. Therefore, every move of the Fed has a profound impact on the global economy.

Historically, the US dollar interest rate cycle has made significant adjustments to the global economy. There are three main factors that affect the Fed's interest rate increase: the employment market, inflation rate and the global economic environment.

From the job market, the US labor department's employment report shows that the number of non farm workers increased by 287 thousand in June, compared with the dismal data that only 11 thousand increased in May, and the data rebounded in June.

Combining the two months of data, the average number of jobs increased by an average of 149 thousand a month, roughly consistent with the rate of growth needed by Federal Reserve officials to maintain the unemployment rate less than 5%.

The US manufacturing PMI, the real estate market and consumer confidence index, which were released earlier, are much better than expected, indicating that the US economy is improving in the two quarter.

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Looking at the factors that exclude food and energy prices since 2016, the US core inflation rate has risen from 1.3% last year to around 1.6%, while the core PPI producer price index has remained near 110. Although overall inflation is not strong, the upward trend is stable and obvious.

Whether this trend is sustainable remains to be seen.

From the perspective of the global economic environment, the most critical factor affecting the short-term interest rate increase in the Fed is the extent of the UK's impact on the global economy.

The Fed is in a dilemma: on the one hand, when the uncertainty of the international environment increases in the future, as an important asset of hedge assets, the passive strength of the US dollar means that

Tighten up.

On the other hand, when the global financial market is in panic, the reserve currency, as the Central Bank of the central bank, makes it difficult for the Federal Reserve to tighten liquidity.

Therefore, the Fed still needs to see whether the UK's retreat to Europe will cause other major changes in the short term, such as whether there will be a crisis in the European banking system, and whether there are small probability events in the European credit derivatives market.

The author believes that with the approaching of the end of July, if the global financial market remains stable and the European withdrawal event has not been further fermented, the possibility of a strong hawkish signal will be greatly increased even if the Fed does not raise interest rates.

Finally, for the Bank of Japan, its policy orientation is clear.

After the euro referendum in June 24th, global investors' risk aversion rose sharply, buying yen as a safe haven currency, resulting in a sharp rise in the yen and a deep fall in the Japanese stock market.

At present, although the market's risk aversion is stable, the appreciation pressure of the yen will increase sharply.

In Andouble economics, the depreciation of the Japanese yen is a key factor: it stimulates exports through the devaluation of the yen, and then spreads to the upstream and downstream enterprises to drive investment and consumption and boost inflation.

The continued strength of the yen weakened its export competitiveness, while import price inflation aggravated inflationary pressure.

If the Japanese yen continues to appreciate, efforts to stimulate the economy will vanish, and the accumulation of huge government debt will aggravate the downward pressure on the economy.

In an emergency meeting after the EU referendum, Japanese Prime Minister Abe Shinzo said that we must continue to pay close attention to the money market and mobilize all available measures to support the Japanese economy.

After Japan's ruling party won the Congressional Senate election in July 10th, Abe Shinzo said it would plan to increase fiscal stimulus measures.

Therefore, I believe that the Bank of Japan is likely to continue to increase quantitative easing in the July interest conference.

The most likely way to choose is to expand the scale of asset purchases and to reduce interest rates that are already negative.

Moreover, in the context of the global wave of risk aversion, the Japanese government may intervene directly in the foreign exchange market and use other tools to reverse the yen's upward trend.