Downsizing hits, turmoil intensifies! On the contrary, China downgraded. What is the fate of the Chinese and US markets in 2022? (Follow and comment to send 66 points)

Just last night, on the third trading day of the beginning of 2022, the US stock market suffered a heavy blow.$Nasdaq Composite Index (.IXIC.US)$ and technology stocks suffered a severe setback and plummeted along the way.

The reason is that the minutes of the December FOMC monetary policy meeting released by the Federal Reserve in the early hours of the morningThe minutes show that the extent of the Fed's hawkiness has exceeded market expectations.In order to cope with inflation, the US has begun to seek a shift from the ultra-high liquidity and ultra-low interest rates since the pandemic to speed up the tightening of the monetary environment.

In other words, in addition to interest rate hikes coming sooner, the rate of downsizing will also be faster than expected by the market.However, the sharp drop in technology stocks last night also shows that compared to interest rate hikes, the power of downsizing should not be underestimated.Because we thinkThe abbreviation is exactly what investors should focus on and be wary of in 2022.

Two days ago, we learned from history and discussed in detail what interest rate hikes are and their impact on the fate of US stocks in 2022. Interested mooer can click on the blue link to view

Market outlook | The sharp sword of the Fed's interest rate hike is at its peak, what is the fate of US stocks in 2022?

Today we will focus on starting fromWhat is downsizing, the impact of downsizing on the stock market and industry, and downsizing on the Chinese marketThe three aspects of influence were discussed with all mooer.

1. What is an abbreviation

An abbreviation means a reduction in the balance sheet,It usually shows that the Fed no longer increases its bond holdings, but instead sells assets to recover dollars from the market, thereby achieving the goal of reducing assets and liabilities.

We simply liken the Federal Reserve to a bank. When someone deposits ten thousand two thousand dollars of gold, the bank gives the corresponding value in dollars. At this point, gold is an asset, and the US dollar is the bank's liability to users. Users can trade or invest in US dollars on the market. When banks decide to sell their gold holdings and recover dollars from the market, it is equivalent to the assets and liabilities held by banks becoming smaller, and the corresponding reduction in balance is reduced.

Therefore,The direct effect of the downsizing is that the number of dollars in the market has decreased, and the dollar has become more valuable.Therefore, the Federal Reserve usually uses a combination of interest rate hikes and contraction to reduce the liquidity of the US dollar in the market, thereby curbing inflation.

The Federal Reserve, on the other hand, is a big buyer of US bonds,One of the downsizing actions is to reduce the volume of US debt purchases。 When demand decreases,The price of US bonds will fallHowever, there is an inverse relationship between bond prices and yields, so under normal circumstances,US bond yields will rise.

II. The impact of downsizing on the US stock market

Let us take history as a guide. Over the past ten years, during the period when the Federal Reserve shrank its balance sheet, the performance of US stocks was often more turbulent, especially when it had just entered the initial phase of contraction.

The early morning of the 6th is a microcosm. US bond yields have soared. The 30-year US Treasury yield has accumulated a cumulative increase of nearly 15 basis points in the first two trading days of the new year, the biggest two-day increase since March last year. The yield on 10-year US Treasury bonds rose 5.79 basis points, breaking 1.7% and reaching 1.7052, a new high since April 2021.

As a result, rising interest rates will put pressure on overvalued assets such as technology stocks, causing investors to worry.The predictable rise in borrowing costs is also prompting investors to carefully consider whether to hold growth stocks (especially overvalued stocks).

As Danny Kirsch, head of options business at Cornerstone Macro LLC (Cornerstone Macro LLC), said,”The prospect of rising interest rates is making all of these tech stocks less attractive. If yields continue to rise, I think this situation is likely to continue.”

On the other hand, downsizing and interest rate hikes often go hand in hand. When market interest rates rise, investor risk appetite decreases, and they are more likely to save money or buy bonds.

3. The Fed downgraded, and China downgraded to “hedge”

When the Federal Reserve StartsAbbreviationsFrom time to time, a large amount of US dollars will flow back to the US, which will lead to China includedCapital costs in other countries rise, currencies may depreciate, and asset prices will fall accordinglyAs a result, the driving force of the economy has declined, and development has been weak.

Moreover, since 2021, the leverage ratio of China's non-financial sector has declined, especially real estate, but the decline in the leverage ratio also means a reduction in consumer spending capacity, enterprises invest cautiously, and the market environment is getting colder.

Therefore, on December 15, 2021, China also began “hedging” and implemented a monetary expansion policy downgraded by 0.5 percentage points. It can be described as a rapid downgrade.

However, the Central Economic Work Conference put forward a requirement for economic work in 2022 that “stability takes the lead, and progress through stability”. It is foreseeable that in 2022, the word “stability” is reflected in monetary policy, and it is likely that the easing cycle will begin with a lower standard.

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