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3 charts to see the market: Has the Fed scaled back its QE plan?



Has the Fed tapered its QE program?

Source: Bloomberg; Dates: 2016-2021

According to the minutes of the Federal Reserve meeting released last week, several members began to consider discussing the reduction of quantitative easing policy. Analyzing the current market economic situation in the United States, there are several reasons why the Fed is about to reduce its bond purchase plan

Financial stability: In money markets, credit and liquidity risks are extremely low.

The vaccination situation in major mature countries is going well.

Inflation is now at disturbingly high levels: core and headline and the breakdown of goods and services point to a broad acceleration in inflation.

Data: OpenSea's trading volume has dropped by 99% from its all-time high: Jinse Finance reported that DappRadar's data shows that the trading volume of OpenSea, the world's largest NFT market, has dropped by 99% in less than four months. While the company disputed that figure to some extent, it acknowledged that the sharp slowdown in activity was real and expected. According to DappRadar’s statistics page, on May 1, OpenSea’s ETH daily transaction volume peaked at over $400 million. In comparison, the platform generated only $5 million in ETH volume on Aug. 28. [2022/8/31 12:59:05]

The labor market remains strong: The economy has recovered to two-thirds of the jobs lost during the pandemic.

Zhang Liping, Institute of Finance, National Research Center: Four Changes in Wealth Management in the Digital Currency Era: On October 23, Zhang Liping, deputy director of the Financial Research Institute of the Development Research Center of the State Council, spoke at the "2021 Global Wealth Management" hosted by Caijing and Caijing Think Tank. forum” stated. There are four changes in wealth management in the era of digital currency. The first is that the external image of currency has changed. Currency has changed from visible to tangible to invisible. Wealth acquisition includes income from physical and mental work. From the perspective of the history of currency development, it mainly developed from rare items such as shells in ancient times to precious metals and then to banknotes. However, when it comes to the stage of legal digital currency, including the form of cryptocurrency, it is a string of encrypted numbers stored in electronic devices, so its form has changed a lot. ("Finance" new media) [2021/10/24 6:10:12]

There is excess liquidity in the market: short-term US dollar interest rates, including repurchase, LIBOR, SOFR and other interest rates, are generally close to historical positions.

Huang Yiping: Only internationalized currencies can use digital currency to carry out cross-border transactions: On October 24, at the third Bund Financial Summit hosted by the China Finance Forty Forum (CF40), Peking University Digital Finance Huang Yiping, director of the research center, said that the first step of China's digital renminbi is very cautious and moderate. To issue digital currency as M0, for most people, it has nothing to do with the WeChat payment and Alipay (Alipay) that are already in use. Different, but many people may think it is safer and more efficient. For now, the Chinese digital yuan will not bring substantial changes to daily life. "In the long run, we must first develop from retail digital currency to wholesale, and then see if it can be used for cross-border settlement and cross-border payment. This is related to currency internationalization. Digital currency will not make currency internationalized, only the existing Internationalized currencies can use digital currencies to carry out cross-border transactions.” [2021/10/25 20:54:20]

First, we maintain the 10-year Treasury yield at 2% in 2021, then fluctuate between 2~2.5%, and the yield curve tends to steepen.

At the same time, we see a case for tapering and believe conditions may emerge for tapering bond purchases in Q3. We expect the Fed to make adjustments later this year. Although the Fed will not raise interest rates until 2024, we believe that the timing of raising interest rates may be in 2023 after the Fed stops quantitative easing.

Asian credit less affected by U.S. tapering QE

Source: Bloomberg; Date: 2021

Asian credit has long been in our portfolio, and we remain bullish on the Asian credit market as we assess current market conditions.

Under the current extremely loose monetary policy in the United States, we estimate that the U.S. dollar is overvalued to a certain extent, while the valuation of Asian currencies appears to be undervalued, which also reduces the impact of rising U.S. bond yields on Asian bonds denominated in local currencies. Risks are limited by fluctuations.

Asian countries' own current account surpluses are mostly in surplus, reducing their need for external financing. Moreover, in Asian countries, the ratio of foreign exchange reserves to external debt is also more appropriate to prevent the risk of the collapse of the domestic currency.

In addition, even if the Asian credit market is facing some bad news recently, under the demand for income, the investment highlight of Asian credit is its strong fundamentals, but it is not expensive in terms of interest rate spreads. Investors are advised to allocate Asian high-yield bonds during fluctuations on the barbell end.

Musings behind Bitcoin

Source: DBS Bank, Finance L.P.

The recent trend of Bitcoin has successfully explained the concept of polarization. In the past week, Bitcoin has fluctuated by more than 30% in one day, and has fallen by 40% since hitting a high at noon in April.

For Bitcoin investors, there are also two camps. For bears, what needs to be considered is that Bitcoin’s blockchain technology has indeed brought revolutionary changes to finance, while decentralization, security, limited Characteristics such as supply and digital nature give Bitcoin unique properties that are almost irreplaceable. For bulls, the future of bitcoin remains uncertain, with scalability, volatility, regulatory and geopolitical risks all hurdles to its widespread adoption.

As with most new technologies, investor enthusiasm can be an important factor in asset bubbles, as the 2000 dot-com bubble taught us. Of course, this does not mean that technology is worthless. There is often a gulf between the value of an idea and the ability of investors to capture that value. We recommend that investors remain cautious while recognizing the value.

Wealth management is not a deposit, products are risky, and investment must be cautious.


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