U.S. inflation may have been seen, but this is only a part of the market rebound

Editor's note: Dr. Dai Yifeng is a macro hedge fund manager who worked in the United States. He has rich theoretical and market experience. He once served as a fund manager at domestic mainstream funds. Now, Dr. Dai Yifeng wrote a market weekly report every week. After his permission, "Understanding the Economy" will publish his views on the global market every week, asking him to bring the closest front -line market thinking from Wall Street.

Author | Dai Guifeng

Overseas macro hedge fund manager, understanding APP expert (TA has settled in the app mini program)

Overview

I still insist that I have talked about the framework for a long time before, that is, the "opportunity window". I think the market is still in the "window period". It means that during this time, the Fed, interest rates, or economy (whether or not it decline) has no clear new direction.

In this macro environment, the market can retreat from the previous state of dense pricing of the Federal Reserve policy and rebound from the oversold state. At this time, the previous dense selling was enough to be a sufficient reason for rebound -that is, what I called before.

The recent "seeing the top" stimulus to the market is just a part of this larger framework.

I think there are four situations in the market that will turn down again: A. A high inflation data appeared in August. B. Some extremely negative economic data indicate that the economy is about to fall into decline. C. China's economic recession. D. The market rebounds until it is considered too high.

The possibilities of these four situations exist, but most of the probability of implementation is relatively low.

A) Inflation.

The inflation rate in August will not be outrageous. Petroleum and natural gas prices do not support inflation. Instead, inflation may indeed be peeled -CPI has declined in July, while core CPI and core PCE have been on the top a few months ago, that is, since February or March. Inflation expectations have been declining since April.

B) Economic figures.

The labor market is still extremely strong, and the unemployment rate in July has dropped further to 3.5%. This means that there are almost extremely negative economic data in the future, even if it is soft data, such as emotional data.

C) China.

The Chinese economy has slowed for more than a year. Therefore, the economic weakness is not new. The new thing is that after the policy steering, economic data has not improved marginally. And these policies launched seem to be more restrained.

But the market is always forward -looking, and economic data is a lag indicator. As long as the policy is supportive and gradually enhanced, the market will look at the lagging economic data and actively look forward to the future.

D) Over -rebound in the market.

The market may not have rebounded "too much". Since the market began to rebound, there has been a lot of doubtful views. The so -called "shoe -shoe children" has not yet begun to invest in the stock market -they are actually more pessimistic.

D Scene is actually difficult to think about, because it is about emotion and technical. Emotional and technical aspects can explain what happened in the past, but they are not easy to "predict" the future -can you predict whether I am happy or angry tomorrow based on my facial expression?

Trying emotions and technology to predict the market, just like me to grab fish in the rumor. I think this is theoretically feasible, but it will be very difficult. But I think if you can try to grow bear claws (or some sharp nails), you may do it.

For Scenic D, what I can say is that the market will rebound until it no longer rebounds. This may sound stupid, but in fact there is the truth behind it. Here I did not predict the level or index at the time of the decline in a specific market.

In other markets, commodities are actually pricing for decline. The understanding of the market's possibility of recession will affect interest rates. Therefore, commodities are also trading at interest rates, falling down as interest rates fall.

The Federal Reserve, interest rate and recession probability is the driving force of driving all markets. The market does not have a clear view of their future direction.

In other words, to some extent, the market is now in a stage of information vacuum.

Therefore, the stock market may still rise, as long as there is too much sales before it is enough. The commodities may continue to fluctuate, and the reason for them to rise too high before is enough.

Inflation may indeed be at the top

Inflation may (just may) be at the top. Although there are still many stickiness components that may continue to promote inflation.

The overall inflation rate (CPI changed year -on -year) in July to 8.5%. 9.1%in June. The PCE in the chart seems to be increasing year -on -year, but this is the data of June, 6.8%. The number of inflation after trimming also increased in June to 6.9%. Looking like this, June is indeed a bad month. The Federal Reserve also raised interest rates 75 basis points.

The core inflation data was peaked a few months ago. The core CPI reached a peak of 6.5% in March and 5.9% in June and July. The core PCE reached a peak of 5.4% in February and rose slightly to 4.8% in July.

Since April, inflation expectations have been declining.

Based on survey inflation is much higher. The inflation of the University of Michigan is expected to drop slightly to 5.2%in July. Based on market inflation expectations are very low. Five -year -old and long -term declines have fallen sharply from April to June, but have risen again since July. Its overall level is still very low. Breakeven in 10 years also follows similar trajectories.

Long -term charts show that the CPI level has been rising sharply since 2020. In this way, CPI's monthly month -on -month rises correspondingly.

If the price changes of the price start to slow, the price level has stopped sharply, and the inflation data will slow -this is the result of the base effect.

The price trend may ease.

M2 has been declining, which may eventually lead to slow price or inflation.

Since June, commodities have been falling. Even if the price of commodities remain at a relatively high level, as long as they stop rising sharply, their pressure on inflation may ease.

The bottleneck of the supply chain is also relieved. The supply chain tension index fell sharply in July.

The supply chain bottleneck is the initial driving factor of inflation. Any improvement in this area will relieve inflation pressure.

China's economy seems to be related to the supply chain pressure index. Although economic data is relatively negative, I think the Chinese economy should be improved. I used to think that China's economy was at the bottom of the cycle unchanged.

Housing and labor are the key part of inflation, but both have signs of slowing down. They may not have too long persistence.

The market is at the price of interest rates

Interest rates are pushing everything.

Inflation is eased, and the Federal Reserve is not much attention for the time being, so interest rates have been declining. Correspondingly, the stock market rose and the goods fell.

The S & P index rose due to the decline in interest rates. This was a mirror relationship with the previous situation. Previously, Standard Purcerad fell due to rising interest rates.

On the other hand, commodities fell due to the decline in interest rates.

These are basically the reversal theme I talked about last week.

At some point in the future, interest rates will eventually rise again, and stocks and commodities may be reversed again.

China is at the bottom of the cycle

The Chinese economy is at the bottom of the cycle, and the policy can be cope. Although economic data is negative, various policies are being tried.

I just hope that the rest of the world will not fall into a decline now. Because in the global economic recession, no country can be alone.

However, I think that if a global recession really occurs, it is also a matter of 2023.

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