Markets Weekly June 22, 2024

Hello my friends, today is June 22nd and this is Markets Weekly. So this week, another good weekend markets, S&P 500 making new all-time highs. However, our remain cautious, my expectation is that we correct and I hope to buy the dip in the coming weeks. Okay, so today I want to talk about three things. First, let's talk about some news from the People's Bank of China, where their governor pan seems to be suggesting that they are going to be enlarging their toolkit to include buying and selling of government bonds in the secondary market.

你好，我的朋友们，今天是6月22日，这是本周的市场周报。这一周，市场又迎来了一个好周末，标准普尔500指数创下了新的历史新高。不过，我们依然保持谨慎，我预期市场会有回调，并希望在接下来的几周内能逢低买入。 好的，今天我想谈三件事。首先，让我们聊一下来自中国人民银行的消息，他们的行长潘似乎暗示，他们将扩大工具箱，包括在二级市场买卖政府债券。

Secondly, so this past week we also had new impetus in the developed market central bank cutting cycle. We had the S&B cut a second time this year and the Bank of England inching towards cuts maybe as early as August. So let's talk a little bit about what's going on over there. And lastly, now the latest University of Michigan consumer sentiment data shows that US consumers continue to be unhappy. Now that's been confusing a lot of people since on the surface it looks like the economy is doing well. Let's explore a couple theories that try to explain this discrepancy.

其次，上周在发达市场央行的降息周期中也出现了新的动向。瑞士央行今年第二次降息，而英格兰银行可能最快在八月份就会降息。让我们稍微谈谈那边的情况。 最后，最新的密歇根大学消费者信心数据显示，美国消费者依然不满。这让很多人感到困惑，因为表面上看，经济似乎表现良好。让我们探讨几个试图解释这种矛盾的理论。

Okay, starting with China. So let's level set a little bit. So a few months ago, there were some reporting that person she in a speech suggested that the central bank there could be buying and selling government bonds. Now that speech was actually made last year, but only I guess leaked into to the press in the past few months. Last week, though, we got more details as to what that could mean. Governor Penn of the People's Bank of China gave a speech highlighting some changes that he would make in how the central bank operates including some more active buying and selling of government bonds in the secondary market. Now this doesn't necessarily mean QE, but it does mean the capability of doing so. In order to understand this, I think it's helpful to have some more context on how the PBOC operates.

好的，从中国开始吧。让我们先了解一下背景。几个月前，有报道称某人（个人她）在一次演讲中建议央行可以买卖国债。其实，这个演讲是在去年做的，但好像最近几个月才泄露给媒体。不过，上周我们获得了更多关于这意味着什么的细节。中国人民银行行长潘功胜发表了一次演讲，强调了一些他将对央行运作方式进行的改变，包括在二级市场上更积极地买卖国债。这并不一定意味着量化宽松，但确实表明有这种操作的可能性。为了更好地理解这点，我认为了解一些中国人民银行的运作背景是有帮助的。

So first of all, what is their mandate? So the Fed full employment price stability, ECB price stability, supporting the goals of the European Union and so forth. In China, the PBOC is charged with protecting the value of the currency, so stability of the currency with the view towards economic growth. Now what does that mean? Well, one way you can think about it is of course an inflation mandate because having a stable currency is the same thing as having stable inflation, but that takes on an additional dimension when it comes to China because they have a managed float. So internally, of course, it has to do with inflation stability externally. It has to make sure that the currency doesn't move too much on the exchange rate front.

首先，他们的主要任务是什么呢？对于美联储来说，是实现充分就业和价格稳定。对于欧洲央行来说，是价格稳定和支持欧盟的目标等等。而在中国，央行（PBOC）的任务是保护货币的价值，也就是保持货币的稳定，并关注经济增长。那么这意味着什么呢？一种理解是这实际上是一个通胀的任务，因为货币稳定等同于通胀稳定。但在中国，这还有一个额外的维度，因为中国实行的是管理浮动汇率制。所以对内来说，这与通胀稳定有关；对外则要确保货币在外汇市场上的波动不会太大。

Now the second part in looking at the PBOC is just how does it go about implementing its monetary policy. In the US, of course, we know the Fed adjusts the overnight interest rate up or down and sometimes of course also does suffer its balance sheet to try to influence long-rated interest rates. Now the PBOC is a bit different because in addition to interest rate tools, they also have quantitative tools. So this is something that the Fed used to do as well. So for actually a large part of the Fed's history, when they managed the economy, they were thinking in terms of credit growth, money supply and things like that. But what they found in their experience is that managing these quantitative aggregates just wasn't very effective.

现在，关于中国人民银行（PBOC）的第二部分讨论是它如何实施货币政策。在美国，我们都知道美联储通过调节隔夜利率来影响经济，有时还通过调整资产负债表来影响长期利率。中国人民银行有所不同，因为除了利率工具外，它们还使用数量工具。这有点类似于美联储过去的做法。在美联储历史上的很长一段时间里，他们管理经济时也是考虑到信贷增长、货币供应等方面。但是他们的经验表明，管理这些数量性总量并不是很有效。

Part of this was that because the Fed lived in a somewhat of an open economy. Whenever they tried to have control over quantities of, let's say, credit or M2 or stuff like that, the banks and the borrowers could simply just leave the US and set up shop elsewhere. You had a very vibrant offshore dollar market in London, basically, allowing them to easily evade any quantitative restrictions that the Fed put on domestic credit growth. So the Fed over the years transitioned to basically focusing solely on price. You won't ever hear the Fed talk about, oh my gosh, I'm trying to have these M2 supply targets or something like that. That's just not how they think about it.

部分原因是美联储处在一个相对开放的经济环境中。每当他们试图控制信贷、M2等数量的时候，银行和借款人可以轻易离开美国，在其他地方开展业务。伦敦有一个非常活跃的离岸美元市场，这基本上使他们能够轻松规避美联储对国内信贷增长的任何数量限制。因此，多年来，美联储转而基本上只关注价格。你不会听到美联储谈论什么M2供应目标之类的东西，他们根本不会这样考虑问题。

They think really just based on interest rates, which is a price. But in China, things are a bit different. They have a somewhat of a closed financial system and one that's very much bank dominated. So if you want to borrow money in China, oftentimes it's through the banking sector. So the People's Bank of China tries to control, tries to have influence over the economic conditions, not just through adjusting the prices, money interest rates through things like seven-day repo or a medium-term lending, but also trying to adjust things like the reserve ratio, which of course we used to do in the US as well, trying to control the overall quantity of credit created by the banking sector.

他们通常只考虑利率，这是一个价格问题。但在中国，情况有点不同。他们有一个相对封闭的金融系统，而且这个系统主要由银行主导。所以，如果你想在中国借钱，很多时候是通过银行部门。中国人民银行不仅仅是通过调整价格，比如七天回购利率或中期借贷利率，来控制和影响经济状况，还尝试调整存款准备金率。当然，美国也曾经这样做，目的是试图控制银行部门创造的信贷总量。

Now, what seems like they want to do now is to also have an additional tool to have more control over market-based financing, which while still relatively small in China is growing. So what do I mean by market-based financing? In the US, if you want to borrow money, you can go to a bank, but oftentimes, especially if you are a large corporation or someone wealthy, you can go to the market and you could either say float a bond or if you hold something like a treasure security or corporate bond, you can also sell it and in return get cash. Now, this is a big part of how the US financial system works. And so the Fed, of course, expanded its footprint to have a bigger role in these market-based financing things, most notably in quantitative easing, trying to lower long-term interest rates, but also when the market freezes up to provide emergency lending.

现在，他们似乎想要增加一个额外的工具，以便更好地控制市场化融资。在中国，虽然市场化融资仍然相对较小，但正在逐步增长。那么，什么是市场化融资呢？在美国，如果你想借钱，你可以去银行。但通常情况下，特别是如果你是一家大公司或富有的人，你可以去市场上筹款。你可以比如说发行债券，或者如果你持有国债或公司债券，你也可以卖掉它们以换取现金。这是美国金融系统运作的重要部分。因此，美联储当然也扩大了在这些市场化融资活动中的影响力，最典型的例子是量化宽松，试图降低长期利率，同时在市场冻结时提供紧急贷款。

Remember, during the pandemic, everyone who held treasuries was trying to sell treasuries and get cash. Now, that's works fine provided that there are also people who are trying to buy treasuries at the time that is to say, put cash into the market and take a treasury security out. In 2020, there was this huge imbalance between the supply and demand, such that the Fed had to come in and ultimately buy enormous amounts of treasury securities, which is to say, add cash into the market so that investors could take cash out. When you are a bank-dominated financial system, you don't really worry about this because when people go to the bank to ask for cash, the bank can turn around and ask for cash from the central bank through, let's say, the discount window.

请记住，在疫情期间，所有持有美国国债的人都在试图卖掉国债来换取现金。这种做法是可以的，前提是还有人愿意在那个时候购买国债，也就是说，把现金投放到市场中并取走国债。2020年，市场上供求关系极度失衡，美联储不得不出手购买大量的美国国债，也就是向市场注入现金，让投资者能取出现金。在一个以银行为主导的金融系统中，不需要太担心这个问题，因为当人们去银行取现金时，银行可以通过比如贴现窗口向中央银行要现金。

Now, it seems like in China, as their financial system grows, the central bank there would also like the ability to be active in the secondary markets, not just to say, implement quantitative easing, that is to say, try to have more influence over longer-dated parts of the curve. I don't think that's what they're trying to do. But also, in the event that you have a liquidity panic in the market, you could be there and support the market just like the Fed did in March 2020. Now, what's been happening in China over the past few months is there's been a tremendous bull market in bonds. And you can see here that their long-dated interest rates are really coming down. And that seems to be worrying the authorities a bit.

现在，随着中国金融体系的发展，央行似乎也希望能够在二级市场上更加活跃，不仅仅是实施量化宽松，换句话说，就是希望对长期利率曲线的更多部分产生影响。我认为这并不是他们的主要目标。但同时，如果市场出现流动性恐慌，他们也可以像美联储在2020年3月那样，挺身而出，支撑市场。过去几个月，中国市场上出现了债券大牛市。你可以看到，他们的长期利率真的在大幅下降。这似乎让当局有些担忧。

They are mindful of what happened, say, in Silicon Valley Bank, which was actually explicitly mentioned in government or pan speech. That there is some serious interest rates risk here where the markets became disorderly. Now, having that capability to go and buy or sell securities when the market becomes disorderly is really important, especially as the capital markets grow. So that seems to be the indication of what they're trying to do, just to have this capability. Not clear if they need to use it. But of course, if you're a central bank, you always want to have this tool there in the back of your pocket. So that seems to be the direction in their working towards, and to be clear, many, basically all other central banks have this. ECB, of course, can go and buy securities, Canada can, of course, S&B can, of course, as well.

他们很关注在硅谷银行发生的事情，这在政府或央行官员的讲话中也有明确提到。这里确实存在一些严重的利率风险，市场变得不稳定。那么，拥有在市场失序时买卖证券的能力变得非常重要，特别是在资本市场不断发展的情况下。所以，这似乎是他们想要实现的目标，只是为了拥有这种能力。目前还不清楚他们是否需要使用它。但当然，作为一个中央银行，你总是希望在背后有这样一个工具。因此，这似乎是他们正在努力的方向，需要明确的是，实际上几乎所有其他央行都有这种能力。比如，欧洲央行当然能购买证券，加拿大央行和瑞士国家银行也是如此。

So it's something that they are developing, and it's in line with having a more developed financial system. So that seems to be what's happening there, and it'd be interesting to see how that develops. Of course, it does open the door to quantitative easing, but I'm not sure they're hinting at that at all. Okay, the second thing that I want to talk about is the acceleration in the developed market rate cutting cycle. Now, remember this rate cutting cycle began when the Swish National Bank cut interest rates earlier in the year. Why did they cut interest rates? It's because inflation was lower than expected, and this time around, they're cutting interest rates for the same reason. Looking at their projections, it looks like they're thinking that inflation will actually be around 1%.

所以，这是他们正在开发的东西，这与建立一个更发达的金融体系是一致的。这似乎是目前的情况，看看它的发展将会很有趣。当然，这确实打开了实行量化宽松政策的大门，但我不确定他们是否在暗示这一点。 好的，我想谈的第二件事是发达市场加速降息的周期。请记住，这个降息周期开始于年初瑞士国家银行降息。他们为什么降息？是因为通胀低于预期，而这次他们降息的原因也是一样的。根据他们的预测，他们认为通胀实际上会在1%左右。

So there's really no reason for interest rates to be where they are today, and they cut it by 25 basis points. Now, part of this, of course, appears to be this sudden surge in the strength of the Swish Frank, especially against the Euro. As we discussed last week, there's some political risk in the European Union, and that's causing a bit of a flight to safety into the Swish Frank. Now, the Switzerland being, of course, an economy that has a big export sector, they're sensitive to fluctuations in currency, and the Central Bank may be trying to manage the strength in the Swish Frank by cutting rates and weakening it a bit.

所以，目前的利率没有理由保持在如今的水平，他们把利率下调了25个基点。部分原因是瑞士法郎对欧元的汇率突然大幅上升。正如我们上周讨论的，欧盟存在一些政治风险，这促使资金流向相对安全的瑞士法郎避险。瑞士经济有一个很重要的出口部门，因此对货币波动非常敏感。瑞士中央银行可能试图通过降息来控制瑞士法郎的强势，使其稍微走弱一些。

Now, in addition to the S&B last week, we also had the Bank of England. There, while they did not cut rates, you had two members of the committee want to cut rates. The market now is pricing in about a 50% chance that we could get a rate cut as early as August. Now, looking at the data in England, it's clear to see why the market thinks this way. Now, inflation has definitely been coming down. When you harmonize inflation across so across different methodologies across the restrictions, you'll see that inflation in the UK has been coming down as it has been coming down in the US and other DMs as well.

现在，除了上周的S&B（瑞士国家银行），我们还关注了英格兰银行（Bank of England）。在英格兰银行那边，虽然他们没有降息，但委员会中有两名成员希望降息。现在市场预期我们可能在8月就会看到一次降息的可能性约为50%。现在，看看英国的数据，很明显能理解为什么市场会这样认为。目前，通胀确实在回落。根据不同方法和限制条件进行的通胀调整显示，英国的通胀和美国及其他发达市场一样都在下降。

So it makes sense for the Bank of England to be thinking of moderating their sense of restrictiveness. In addition, you can also see that their unemployment rate has been taking higher. So they're going to have to be thinking a little bit more about growth in addition to inflation going forward. So it's no surprise that the market is beginning to think that, again, the Bank of England will join the ECB, Canada, Swish National Bank, and embarking upon a rate cutting cycle, and maybe sooner than we expect, the Fed will be cutting rates as well. Find out more about that as the data comes in over the coming weeks.

因此，英国央行考虑减少其限制政策是有道理的。此外，还可以看到他们的失业率有所上升。因此，他们在未来会更加关注经济增长，而不仅仅是通货膨胀。因此，市场开始认为英国央行会加入欧洲央行、加拿大央行和瑞士国家银行，开始一个降息周期，让人感到并不意外。也许比我们预期的更快，美联储也会开始降息。随着未来几周数据的发布，我们将了解到更多相关信息。

Okay, the last thing that I want to talk about is US consumer sentiment data. So this past week, we got data from the University of Michigan that shows that US consumer sentiment continues to be very poor. Now, this has been confounding a lot of pundits because when they look at the employment data, it seems like we continue to grow jobs and when they look at GDP growth, it seems like it's above trend. When they look at wages, it seems like wage growth is strong.

好的，我最后想谈谈的是美国消费者信心数据。过去一周，我们从密歇根大学获得了数据显示，美国消费者信心依然很低迷。这让很多专家感到困惑，因为当他们查看就业数据时，似乎就业持续增长；当他们查看GDP增长时，似乎高于平均水平；查看工资情况时，工资增长似乎也很强劲。

And so a lot of people don't understand why the consumers are so downbeat when the economic data seems to suggest that things should be better. I mean, not to mention the stock market, which continues to make all time highs almost all almost every single day. Now, there's a couple good theories that are being put forth to explain it that both have pretty good, I think, makes sense to me. Now, the first one, of course, is partisanship. So looking at this chart from the Richmond Fed, you notice that when you have a Democratic president, Republican, Republican consumer sentiments are very poor. And when you have a Republican president, Democratic consumer sentiments tend to be poor.

因此，很多人不理解为什么消费者情绪如此低迷，而经济数据似乎表明情况应该要好得多。我是说，更不用提股市了，它几乎每天都在创历史新高。现在，有几个很好的理论被提出用来解释这个现象，我认为它们都很有道理。第一个理论当然是党派之争。根据里士满联邦储备银行的这张图表来看，当你有一位民主党总统时，共和党消费者的情绪非常差。而当你有一位共和党总统时，民主党消费者的情绪往往很差。

So part of the reason we're seeing this could be just Republican voters are just really, really downbeat on President Biden. So polarization could be one of the possible explanations of this data. Another explanation that is a bit more data-driven is from a paper put forth by a team of economists, including Larry Summers. And that is to say that a lot of the measures of data that we're looking at don't properly account for things that are important to the consumer.

所以我们看到这种情况的部分原因可能是共和党选民对拜登总统非常不满意。因此，两极分化可能是解释这些数据的一个可能原因。另外一个更数据驱动的解释来自于包括劳伦斯·萨默斯在内的一组经济学家的研究论文。这篇论文指出，我们正在使用的许多数据指标没有正确考虑对消费者重要的因素。

For example, looking at CPI inflation. Now, when we look at CPI inflation, it looks like it went up a lot, and then it came down a lot. CPI inflation at about 3%. Why is the consumer still so upset? Now, the team of economists think that because CPI doesn't fully capture some things that are really important to the consumer, such as financing costs. So, even though the rate of increase in a lot of prices have come down, consumers still look at, say, mortgage rates and car loans as being much higher than they were before, and that matters to them.

例如，看看消费者价格指数（CPI）的通货膨胀率。现在，当我们观察CPI通货膨胀率时，会发现它曾大幅上升，然后又大幅回落。如今CPI通胀率大约是3%。为什么消费者仍然感到不满呢？一队经济学家认为，这是因为CPI没有完全涵盖一些对消费者非常重要的因素，例如融资成本。因此，尽管许多商品价格的增长速度已经放缓，消费者仍然会觉得例如房贷和车贷的利率比以前高了很多，而这些对他们来说是很重要的。

Now, pre-1983, the CPI was actually calculated in a way that included these costs of home ownership, but it was later taken out. So, the team of economists reconstructed the CPI to, in the same way as it was in 1983, including these costs of home ownership financing rate measures, and they end up with a number that is very different from the CPI that we see right now. Their reconstruction shows that CPI went a lot higher than the official CPI in right now remains much higher as well.

在1983年以前，消费价格指数（CPI）的计算方式实际上包括了房屋拥有成本，但后来这些成本被排除了。所以，一组经济学家重新构建了CPI，使其计算方式与1983年的一样，包括房屋拥有成本的融资利率。他们得到的结果和目前的CPI数据有很大区别。根据他们的重构，CPI上涨得比官方公布的要高很多，而且现在仍然比官方数据高出不少。

Now, it seems like consumers care a lot about financing rates, and so even though many other data measures are showing improvement, showing good results, this cost of financing is not being captured in those measures, and it's really important to the consumer. And so, basically, we are mismeasuring what the consumer considers to be important. And the team of economists further take their measure and try and use it to try to explain the gap between what's predicted by economic data and consumer sentiment, and they think that it counts for a lot of the gap.

现在，消费者似乎非常关注融资利率。因此，尽管许多其他数据指标显示出改善和良好结果，这些指标却没有反映融资成本，而这对消费者来说非常重要。基本上，我们没有正确衡量消费者认为重要的东西。一组经济学家深入研究了这一衡量标准，并尝试用它来解释经济数据预测与消费者情绪之间的差距，他们认为这在很大程度上解释了这种差距。

So, what we're seeing now basically isn't that the voters are stupid, it's that the measures that are used are just not accurate. So, that seems to be what's happening there. Don't think that they're going to change it though. One of the interesting things was, I think when you have financing costs in CPI though, when you raise rates, you actually make CPI higher, and when you lower rates, you make CPI lower. So, it kind of sits you open up bizarre situation.

所以，我们现在看到的基本情况并不是选民愚蠢，而是使用的衡量标准不准确。这似乎就是当前的状况。不过，别指望他们会改变这些标准。有趣的一点是，我认为在消费者价格指数（CPI）中包含融资成本时，当你提高利率时，实际上会使CPI上升，而当你降低利率时，CPI会下降。这会导致一种奇怪的情况。

Okay, so that's all I prepared. Thanks so much for tuning in. If you're interested in my thoughts, find me at FedGuy.com, or if you're interested in learning more about markets, check out my online courses at centralbaking101.com. Talk to you guys next week.

好的，这就是我准备的全部内容。非常感谢你的关注。如果你对我的想法感兴趣，可以访问我的网站FedGuy.com，或者如果你想了解更多关于市场的信息，可以查看我在centralbaking101.com上的在线课程。下周再见。