What Is The Impact Of The Fed'S Interest Rate Increase On The Domestic Exchange Rate Market And Stock Market?

Last Friday, Fed officials' speech made global risk assets panic.

For the renminbi, we prefer to think that its relative dollar exchange rate will depend on the strength and weakness of the Sino US economy in the long run.

Fang Gang, a monetary policy member of the people's Bank of China, told a Bloomberg television interview last week that "the Chinese government will moderate the exchange rate trend and allow the RMB to devalue slowly". "The Chinese government should encourage the cross-border flow of capital in the private sector and relax control, including the promotion of QDII2."

Combined with the situation of G20, we believe that China will be more likely to step up efforts to promote the "going global" strategy. Under the internationalization of RMB, the RMB exchange rate volatility will be more market-oriented, and the greater freedom of capital flow is also a reasonable expectation. Then the effect will be different from that of the two quarter of this year. Last year's 818 and January this year, the depreciation of capital movements triggered by the depreciation of the exchange rate may be more referential.

For the A share, it is different from the US stock that has been even higher.

At present, the position of the valuation is relatively reasonable, and its resistance to the Fed's interest rate increase is relatively strong.

Secondly, from the perspective of capital flow, we have already analyzed the possibility of capital returning to the United States due to the Fed's interest rate increase. Instead, it is China's own domestic exchange rate fluctuations, resulting in capital flow expectations, which may have a more direct impact on A shares.

As far as risk assets are concerned, the impact of the Fed's interest rate hike is still at the expected level so far.

Of course, it is logical to expect that such a result can be produced.

However, the expectation itself is a subjective judgment. It is difficult for us to insist that the increase in interest rate expectations is the reason for the plunge in risky asset prices. To a large extent, this judgment also requires subjective credibility.

Last Friday, the yield of 1, 10, and 30 year treasury bonds in the United States increased by 1BP, 6BP and 7BP respectively. Treasury bonds can be regarded as assets that are extremely sensitive to raising interest rates, and their yields generally rise. To a large extent, it should be confirmed that the rate hike is expected to rise.

If

The expected warming is the reason for the collapse of US stocks and crude oil prices on Friday. Then we will not overlook a basic fact that at present, domestic assets, including stocks, bonds, and even crude oil, are at a high price, and the prices of these assets are very sensitive to the Fed's interest rate hike.

From this perspective, if the Fed really enters a cycle of raising interest rates, it can basically be judged that in the early stage of its interest rate hike, the result will not be to attract capital into the US, but rather to attract capital into the US.

The approximate rate will first flow out of the United States.

Because the current US asset price is at a high level, raising interest rate means that its risk-free interest rate will rise, and the rate of return required to invest in US assets can of course be raised. But in the cash flow discount model, the increase in the demand return rate is based on the decline in asset prices, because the future cash flow of assets in this sense can be understood to be unchanged or may be worse in a sense (because the cost of economic production has increased as a result of higher interest rates).

Then, in the true sense of the Fed's entry into a cycle of raising interest rates, every increase in interest rates will bring negative pressure on asset prices, and the economy will also be negatively impacted. At the beginning of the interest rate cycle, interest rates will remain at a low level for a considerable period of time, and the attraction of funds will be relatively limited.

Therefore, at the beginning of the interest rate cycle, the capital ratio will not bear the risk of falling asset prices in order to obtain low interest rates.

At present, the US asset prices are at a high level and are sensitive to the negative pressure on the rise in interest rates. If the Fed really enters the interest rate cycle, the probability will lead to the risk that funds will avoid the risk of falling asset prices until the interest rate level has an attractive position.

Historically, since 1971, the Federal Reserve's 7 rate hike cycle has had 6 interest rate cycles in the early stages, and the US dollar index has fallen, which will take at least 1 to 2 quarters.

At present, the interest rate in the US is close to 0 points. Once the cycle of interest rate rises, the adjustment of the US dollar index will probably be more than 1 to 2 quarters.