Editorials Exacerbate Downside Risks In The US Economy And Stock Market, And China Needs To Guard Against It.

In March 9th, the three major U.S. stock indexes plummeted, and the S & P 500 opened more than 7%, triggering fuses, causing the market to suspend trading for 15 minutes. On the close of that day, the three major indexes fell more than 7%. This is the second time in the history of the US stock market since October 1997. European markets also plummeted across the board.

The stock market plunged, either because of a sudden war or terrorist attack, or because of the crisis in the market itself. There are no specific incidents and clues in the US stock market crash. Although the new crown epidemic is spreading around the world recently, the US economic data show that the fundamentals remain strong, and oil price volatility has not yet posed a great threat to the financial market. The US stock market fell sharply, not because of war, nor from the financial system. Strangely, at present, the market does not know whether this will create a crisis. Therefore, at present, we can not judge where the market will ultimately be based on historical experience. This continuous uncertainty brings some panic and risk aversion, which is gradually destroying the market bulls.

From a long term perspective, the United States has relied on loose monetary policy since 2008 to maintain economic stability and growth. In the absence of structural reform capability, capital has entered the capital market on a large scale, generating an unprecedented ten year bull market. After Trump took office, massive capital repatriation and tax cuts also stimulated the stock market to go up. But this year the United States is facing the election season and some uncertainties, and the stock market continues to rise. Therefore, regardless of the macro environment, the US stock market itself has a medium-term downward pressure. This medium-term adjustment pressure has been affected by the "black swan" incident, such as the epidemic and the fall in oil prices. It has been released too quickly, resulting in a "quasi crisis market shape", which creates mutual stimulation between risk aversion and panic and increases volatility.

After the outbreak of the epidemic in Europe, the market is also concerned about and worried about the effectiveness of the United States. The United States is now facing a dilemma. If they learn the experience of successful epidemic prevention in China, they can improve the certainty of epidemic prevention and control. However, the economic cost is huge and the United States cannot afford it. If we do not learn from China, the uncertainty of epidemic prevention and control is very high. Once the epidemic is out of control, the impact on the economy will be even greater. It is this uncertainty that led some investors to take defensive withdrawal according to the progress of the epidemic. This collective action will constitute a "stampede" effect, that is, the rapid decline of stock index.

American investors are also facing a definite risk, namely, the possibility of a global recession, which means that the level of us listed companies' revenue will decline. This is a challenge that the US monetary policy can not solve. The global epidemic also has an impact on supply and demand. Long time market shock will result in loss of enterprises and personal income, which will further affect investment and demand, leading to serious layoffs in the industry. There will be insufficient systemic confidence and depression, and recovery will take more time to enhance confidence.

The key problem is that in the era of globalization, epidemic is not happening in some areas. The epidemic affected the short-term supply chain in China and spread to other countries and regions. When China's epidemic prevention and control started to stabilize, Japan and South Korea were faced with the risk of epidemic, which further affected the supply chain. The spread of the epidemic in Europe or the time of global supply chain injury prolonged. Considering that they are the major economies in the world, it is expected that the decline in demand caused by the epidemic is inevitable. A problem that needs to be considered is that the epidemic development cycle in these countries is highly similar, and there will be a process of explosive growth. The number of sporadic cases in the United States has been increasing rapidly. Whether the outbreak process is like China, South Korea and Italy is very important. Once the outbreak of the United States has not prepared adequate medical resources, the damage to the US economy can not be estimated.

It can be seen that the internal adjustment pressure of the US stock has begun to release, and the US epidemic prevention and control and its impact on the economy are uncertain. The US stock market will continue to adjust downward as a result of possible global economic recession. The New York fed estimates that the possibility of a recession in the US has reached an unavoidable level. Although the White House announced that it would implement a series of tax cuts to stabilize the market, it would be hard for the fed to cut back on the face of the recession.

? ? ? ? China needs to guard against possible overseas financial risks arising from US stock adjustment 。 To this end, we need to continue to enhance our ability to prevent and defuse financial risks, guard against and defuse major financial risks, and firmly guard against the bottom line of systemic financial risks. On the basis of consolidating the phased achievements that have been achieved, we should continuously improve the overall and foresight of risk response, and guard against and resolve all kinds of possible financial risks in time.

?