Tianfeng Securities: In addition to the recession, the US debt yield inversion also means?
Author: Tianfeng Securities Songxue Tao, head of macroeconomic research, source: Xuetao macro notes March 22, three months * 10-year US bond yields since July 2007 reproduced upside down, caused markets to US recessionhighest.
We summarize the past six months of research on U.S. debt inversion, U.S. economic fundamentals, U.S. monetary policy, and the U.S. stock market, and conduct a detailed review of the current U.S. economy and financial markets: First, what does U.S. debt inversion mean?
”The inversion of the U.S. debt yield curve usually occurs at the end of the economic expansion period and the beginning of the recession period. According to historical experience, interest rate inversion is the leading indicator of economic recession.
“-” Performance of Assets Before and After U.S. Treasury Yield Inversion “August 7, 2018”, the current global economic pattern is in 1999-2000. It is expected that U.S. Treasury interest rates will be inverted from the end of 18 to early 19It entered the post-cycle from the end of 18 to the beginning of 19, and entered the recession from the end of 19 to the beginning of 20.
“-Asset Performance Before and After U.S. Treasury Yield Inversion” 2018-8-7Is not the performance of economies outside the United States.
“-Performance of Large-Scale Assets at the End of Interest Rate Raise” 2018-12-9 “Inverted US debt is not a necessary condition to trigger a global stock disaster in the short term, and the performance of equity assets is more a substitute for the spread and timing of the economic recession.
“-Performance of Large-Class Assets at the End of Interest Rate Increase” 2018-12-9 “After this round of upside down, US debt will usher in a trendy bull market, the equity markets of advanced economies will decline, and the equity markets of emerging economiesIn the short term, it is inevitable that it will continue to kill, but in the medium term, it will be three years.
The US dollar will fluctuate because of risk aversion in the short term, and will gradually weaken in the medium term.
-“Performance of Large-Scale Assets at the End of Interest Rate Increase” December 9, 2018 “Demand will be transformed into the pricing logic of commodities; weaker U.S. dollar, U.S. Treasury yields and risk events will surely make the bottom of supported gold,In reducing absences, gold is just a central shock.
“-” Performance of Large-Scale Assets at the End of Interest Rate Increase “2018-12-9 II. Looking at the current state of the US economy from seven dimensions” Looking at the leading indicators of fixed asset investment and consumption, the US economic growth rate will decline in 2019Combined with inventory data that is sensitive to the inflection point of the cycle, the inflection point of the US business cycle is now on the horizon.
“-Revisiting when the U.S. economy peaked.” 2018-11-9 “The decline after the U.S. business cycle peaks will not be elegant and moderating, even fierce and rapid.
-“Revisiting when the U.S. economy peaks” 2018-11-9 “The current stage of the U.S. economy may be more late than expected by the Federal Reserve and the market. Economic data may decline rapidly in the next 1-2 quarters.
“-” Several dimensions to see the US economy since the beginning of the year “2019-3-5 In 2019, the US Markit manufacturing PMI was 59 from September 18th.
8 quickly fluctuated to 52 in March 19th.
5. The inflection point of inventory, increase, and investment has clearly emerged. The growth rate of GDP has entered a period of decline. The inflection point of consumption and employment may have appeared, and data needs to be continuously confirmed.
Inventory: The manufacturer’s inventory of this round began to go to inventory in January 18, and the inventory of retailers began to accumulate inventory in June 18, so Q3 of 18 should be the high point of GDP growth rate for this cycle.
From the perspective of the inventory cycle, the US economic growth rate 北京夜生活网 is expected to bottom out in Q4 of 19, and the growth rate will rapidly decline before reaching the bottom.
The highest industry: industrial indicators, maximum production capacity and industrial added value growth rates of several tens have all continuously dropped from the 18-year high of Q3-Q4, and the downward turning point replaced by industry has basically changed.
Investment: Since the growth rate of US equipment investment began to gradually increase in Q3 of 18, leading indicators show that the growth rate of US investment will further increase.
The ISM Manufacturing PMI New Orders Index increased from 61 in November 2018.
8 once faded to 55 in February.
5. Durable goods orders (excluding transport goods) exceeded the growth rate from 8% in the summer to 4 in January.
Real estate: US existing home sales have fallen 8 in the past 12 months.
Existing home sales accounted for 90% of US home sales, with 4.94 million homes in January the lowest since November 2015.
Historically, real estate sales started to pick up after the Fed cut rates.
As existing home sales lead real estate investment, new home construction is expected to stabilize and recover in 19-20 years.
Labor market: Labor market data is slightly contradictory.
The unemployment rate is still at a historically low level, but the tightness of the labor market, which is completely negatively related to the unemployment rate, has dropped from the high point of August last year, reflecting the active turnover rate of employees’ confidence in the labor market.Back down.
The decline in the number of hours worked also marks the downturn of the economic cycle and the inflection point of the unemployment rate.
According to historical experience, after the inflection point, the unemployment rate will slowly rise and rise for about one year, and then accelerate. Then the economy will slide into a recession after the unemployment rate accelerates.
Consumption: The apex of US consumption growth this round has already appeared in Q3 of 18 years.
Retail sales in December 18 increased by 1 over the previous month.
6%, weak rebound in January (0% month-on-month increase.
2%), core consumption data plummeted; Michigan consumer confidence index overall growth in January-February 19; the actual growth rate of personal consumption expenditure (PCE) fell slightly in Q4 18.
Exports: By replacing the growth rates of other major economies, the growth rate of US exports began gradually in the second quarter of 2018.In the first half of 2019, the business cycles of China, Europe, and Japan continued to decline, and there is a high probability that the growth rate of US exports will continue to track the continuous global cycle.
If China-US trade achieves a substantial immediate advantage, expansion will definitely slow down the downward slope of US export growth.
Third, the U.S. Treasury is bullish on the trend. From Q4 of 18, we are long on the U.S. Treasury: “It is expected that the U.S. Treasury will be upside down from the end of 18 to the beginning of the year. After the inversion, U.S. Treasury will usher in a trendy bull market.
“-” Performance of Assets Before and After U.S. Treasury Yield Inversion “2018-8-7” In 19 years of the US economy, a gradual fall in data will eventually lead to a bull market in U.S. Treasury yields.
“-” On the High Point of the U.S. Economy “2018-11-9” The risks of deflation outweigh the inflation in 2019. It is expected that the three major currencies in the United States, Japan, and Europe will tighten and shift to loose in 2019, and the interest rates and debts of the three major economies will be overweighted.
“-Asset Performance Before and After U.S. Bond Yield Inversion” 2018-12-9 After experiencing a change in the Federal Reserve ‘s monetary policy attitude at the beginning of the year, in Q1 of 19, we expected that “the Fed will not raise interest rates in 19 years.
“-” A few dimensions to see the U.S. economy since the beginning of the year “March-May 2019: The basic breakthrough rate (UIG), one of the core PCE’s leading indicators, has been trending downward since September 18, and the second of the leading indicatorsThe gap between wage growth and labor breakthroughs weakened the expected pull in 19 years.
The bitmap of the Fed’s FOMC meeting on March 20th shows that there will be no interest rate hike in the next decade.
Fourth, since the initial return to fundamentals after the return of U.S. stocks, the global market is at risk for two core reasons: First, the shift in the Federal Reserve ‘s monetary policy stance and the gradual follow-up of countries have brought about improvements in liquidity expectations; and second, the overall US economyIt is in the stage of “high growth of low blood sugar, the data will be intact, and it will continue to deteriorate for the time being cannot be falsified”. Therefore, risk expectations, liquidity, and fundamentals have all experienced different degrees of expected repairs. The global market is ushering in a “sweet period”.
At the present moment, through the Fed ‘s super-expected dovish allocation to raise interest rates, the euro has launched the third round of targeted long-term refinancing (LTRO). The loose monetary policy is expected to be basically fulfilled and there will be limited space in the short term.Japan ‘s PMI average exceeded expectations, and the weakening of fundamental economic resonance has just begun.
For U.S. stocks, we believe: “The decline in U.S. stocks is coming to an end: Many monetary policies and eventual potential bullish expectations are basically priced by the market. When the expectations are realized, the risk is difficult to continue to rise; the next stage of risk will return to the basic performancesurface.
Based on the current S & P 500 point of 2750, by the end of the year, US stocks are roughly -13%?
“-” US stocks: re-selecting the direction after the return of light “, 2018-3-12 EPS expectations are too optimistic, 2019 US stocks EPS may be negative growth: the accelerated acceleration of the US economy will significantly affect corporate profits.
Historically, U.S. stock performance has a unilateral downward period of about 6-7 quarters. In the last 3 quarters of last year, the EPS growth rate of the current cycle was confirmed to be high. According to estimates, the bottom of the EPS growth rate may appear in mid-2020.
When the US manufacturing PMI is lower than 50, the EPS growth rate of US stocks will probably be negative according to historical rules, so the current market EPS is expected to have a clear downward correction possibility.
Overseas economy weighs on U.S. stock performance: Affected by the overseas economy, U.S. trade exports are growing every 5 years from 5.
7% to 0% by the end of 18.
44% of the S & P 500’s revenue comes from overseas. The continuous change of global PMI means that the overseas economy in 19 years will continue to weigh on the performance (sales revenue and profit) of American companies in 19 years.
It is estimated that it is difficult to continue to expand: The growth of US stocks since 19 years has mainly come from the expected expansion. The index rebound (+ 17%) is basically contributed by the expected expansion (TTM PE + 17%), and the EPS contribution is 0.
The shift in monetary policy has been fully priced: The interest rate futures market shows that the market expects the Fed to not raise interest rates in 2019, and the probability of a rate cut once reaches 47%.
The FOMC meeting in late March confirmed the Fed’s reserve interest rate policy without interest rate hikes. In the short term, the Fed will further loosen its space, and the easing is expected to be fully priced.
After the fundamentals deteriorate, monetary easing may also shrink: at the end of each round of interest rate hikes, monetary policy is turned to the initial stage, and economic and stock performance have not deteriorated. At this time, EPS and PE can expand simultaneously.
However, when the economy starts to accelerate downward and the performance growth rate becomes negative, the market is more worried about the deterioration of fundamentals, and even when the currency is loose, PE estimates tend to shrink.
The market sentiment is still likely to cool down: Since the beginning of the year, the market sentiment of risky events has almost always been at the[optimistic]end. Has VIX turned all the way back since last Christmas?
If the risk event evolves as expected by the market, it is good to honor it; if there is a deviation from expectations, market sentiment will reverse.
From the time progress of the event, each potential bullish is expected to enter the redemption period after the end of March.