Tao Dong, director of the China Chief Economist Forum, said that international capital flows to emerging markets, Hong Kong stocks and A-shares benefit, and the US Federal Reserve (Fed) is expected to slow down the pace of interest rate hikes again this week, and the chances of a “soft landing” for the US economy are also rising high.
Tao Dong said that since the beginning of this year, international funds have flowed into emerging markets at an average rate of US$1 billion per day, and Hong Kong stocks and A shares have particularly benefited. Only 14 minutes after the A-share market opened on Monday (30th), the net inflow of “northbound funds” exceeded RMB 10 billion, and the A-share market is about to enter a bull market.
This week the Fed will make its first interest rate decision of the year. At present, the policy interest rate is close to the neutral level, and inflation has also declined significantly. Policymakers have the space and confidence to further slow down the pace of interest rate hikes. However, the job market is still hot, wage growth is still too fast, and wages and prices are rising in a row, so central bankers still need to continue to press the brakes.
Tao Dong predicts that the Federal Open Market Operations Committee (FOMC) will announce an interest rate hike at 3 a.m. Taipei time on Thursday, raising the target range of the federal funds rate to 4.5% to 4.75%, which is also widely expected by the market.
The focus of investors’ attention is Fed Chairman Jerome Powell’s speech at the press conference. Will he signal that the Fed is not far from stopping rate hikes, or will he cool down market expectations? Tao Dong thought it was cooling down. Too many market participants expect the Fed to cut interest rates this year, and Powell needs to emphasize that the campaign to control inflation is not over yet. Tao Dong believes that this is a hawkish interest rate reduction, “turning the left light and turning right.”
The U.S. economy grew 2.9 percent last quarter, beating expectations for 2.6 percent but not as good as 3.2 percent in the third quarter of last year. Tao Dong said that the recent U.S. macro data show that the economy has slowed down, but it is still resilient enough, while inflation has dropped significantly, giving room for monetary policy to turn moderate. The theme of US stock trading has turned to “disinflation” (deflation), or “soft landing”.
In fact, the US economic momentum is not as strong as it appears. The inventory factor contributed 1.5 percentage points to growth, that is to say, half of GDP growth came from unsold inventories. Consumption in the service industry is relatively strong, contributing 1.2 percentage points, and the growth momentum of other items is obviously insufficient.
Economists are most concerned about the growth of domestic purchases (domestic demand after deducting inventory, foreign trade and government spending), with a growth rate of only 0.2%, which is far lower than the 1.1% in the previous quarter. zero.
Reasons for the decline in consumption include the winding down of excess spending from pandemic relief checks and rapidly deteriorating housing price expectations. Consumption, the strongest driver of the U.S. economy last year, is also the main reason behind the deceleration in growth this year. Although it is not inevitable that the U.S. economy will fall into recession, if there are any surprises in the U.S., the economy may experience negative growth.