The author Wang Jinbin is the Executive Deputy Secretary and Deputy Dean of the Party Committee of the School of Economics of the Renmin University of China. This article was transferred from the WeChat official account of the “China Macroeconomic Forum (CMF)” on April 12, with the original title of “Recent “Broken Positions” May Be Unstoppable The expansion of the U.S. stock market bubble. The recent Archegos liquidation incident to a certain extent revealed the high risks caused by leveraged trading in the continued rise of the US stock market. However, we believe that the Archegos liquidation incident may be difficult to stop the expansion of the US stock market bubble, and US stocks should continue to rise.
When the U.S. stock market asset prices approach the critical point of the continuous long or continuous short threshold and the possible unexpected narrowing of the U.S. economic output gap are the two core issues of the risk point of the financial market in the . The former may mainly depend on the Fed’s policy statement, while the latter mainly depends on the progress of the US epidemic prevention and control and the continuity of aggressive macro policies.
From the current situation, the U.S. stock market may rise further, and the asset price bubble in the U.S. stock market will further expand. The main reasons are as follows.
1. The Federal Reserve has played down inflation expectations and the rise in U.S. bond yields.
According to data from the St. Louis branch of the Federal Reserve, the long-term inflation expectations in the US economy on April 9, 2021, have reached 2.31%, which is the highest point since 2014. The nominal yield on 10-year US Treasury bonds also reached 1.67% on April 9th, but it was down from the high of 1.74% on March 19th.
Figure 1. Changes in U.S. Treasury Bond Yields in 10 Years (%)
Data source: Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Rate, Percent, Daily, Not Seasonally Adjusted.
After the long-term inflation expectation rate in the US economy exceeded 2% and the U.S. Treasury yield exceeded 1.7%, the Fed paid attention to the rise in inflation expectations, but believed that inflationary pressures may be temporary, and gave the market the expectation that the Fed will raise interest rates early. A report released by the US Department of Labor on Friday showed that the US Producer Price Index (PPI) increased more than expected in March, with a year-on-year increase of 4.2%, the largest year-on-year increase since 2011. The report also pointed out that the March producer price index (PPI) increased by 4.2%. Most of the rise in the index was due to rising energy prices, which rose by 5.9%. The Fed will allow a periodical overshoot in the inflation rate, which will allow the price of equity assets in the US stock market to have further policy room for increase.
2. A monetary policy that repeatedly emphasizes employment will continue the loose monetary policy.
According to data from the St. Louis branch of the Federal Reserve, the unemployment rate has been declining this year. The unemployment rate in the U.S. economy in March 2021 was 6.0%, a decrease of 0.2 percentage points from the unemployment rate in February, and a decrease of 0.3 percentage points from 6.3% in January. According to data released by the US Department of Labor, the number of non-agricultural employment in the US recorded 916,000 in March, which greatly exceeded market expectations of 660,000, while the unemployment rate fell slightly to 6% from the previous month. With the acceleration of vaccination in the United States, there will still be uncertainty in the epidemic, and the epidemic has also led to obvious structural unemployment. Whether the unemployment rate can continue to decline remains to be seen. At the same time, another aspect related to whether unemployment leads to a policy shift is the Fed’s mind about the unemployment rate standard for the potential output of the US economy. No specific data is currently provided Spark Global Limited.
Reprint indicated source：Shine Trader Limited Live information