The Fed complied with the market's agreement on December 16, announcing in a policy statement at the meeting as scheduled that it would double the rate of reduction to $30 billion per month, and the dot plot showed that it was expected to raise rates three times each in 2022 and 2023, which was more hawkish than the market expected, and the rate hike was faster than economists expected, Chairman Powell said that interest rates could be raised before full employment was achieved, which also meant that the Fed made all the bets, which is one of the most hawkish shifts in its monetary policy in more than a decade. It demonstrates the determination to contain the worst inflation in decades. After the announcement of the policy statement of the meeting, the US stock market closed sharply higher, the US Treasury yield climbed, was sold off by the market, and the dollar index once strengthened, but then gave back gains, from rising to falling.
Powell
The statement of the latest meeting of the Federal Reserve has deleted the expression "inflation is temporary", which confirms that the Fed has previously misjudged the inflation situation, "Regarding inflation, it is time to abandon the word "temporary", which means that the Fed has been "punched in the face" on inflation issues, formally conceded softly, and it also means that the Fed has been soft on the normalization policy of monetary interest rates under the pressure of the current high inflation, and faster than most investors think.
The U.S. Department of Labor's November Consumer Price Index (CPI) rose strongly on December 10, recording its biggest year-over-year increase since June 1982, as food and a range of commodity prices soared, which gave Americans a nightmare in their lives and reinforced expectations that the Fed would begin raising interest rates in 2022, with data showing that the CPI rose 0.8% month-on-month and soared to 6.8% year-on-year in November after rising 0.9% in October.
At the same time, the University of Michigan Consumer Confidence Index in the United States in December also recovered from a decade low, which also means that inflation expectations are still high, market analysis, the Fed is expected to announce accelerated reduction at its policy meeting held on December 15, JPMorgan Chase will advance the fed's first interest rate hike expectations to Next June, followed by El-Erian, Chief Economic Adviser of Allianz, said that the inflation the Fed has previously thrown may be the worst inflation expectation in the History of the Fed. And the trading of the US bond market has brought turmoil.
On December 16, U.S. Treasury yields rose sharply, with the U.S. 10-year Treasury yield oscillating at 4.43 basis points in the short term, reaching a high of 1.4684%, and the current gain of about 2.7 basis points during the day. The 2-year Treasury yield surged nearly 5.0 basis points short-term after the Fed's decision statement, refreshing daily highs to 0.7155 percent, while the U.S. Treasury department's winning yield on $60 billion of 30-year and 5-year Treasury notes issued a week ago was higher than the pre-issuance yield and the lowest winning level since January.
A corner of the U.S. printing house
According to data monitored by Bloomberg on December 12, the current trading situation of US Treasuries is the worst since March last year, and the US Treasury market is full of landmines and volatility, making investors lose a lot, and in the seven weeks on December 11, the outflow scale rose to $29.8 billion. Subsequently, the New York Fed postponed the planned purchase of 5- to 30-year inflation-protected bonds to December 15 on technical grounds, followed by weaker-than-expected bidding demand for 2- and 5-year Treasury bonds issued by the U.S. Treasury.
Demand for a 5-year Treasury auction is dismal
According to a report by Jim Reed, a senior analyst at Deutsche Bank, at present, 85% of the bonds in the US Treasury market, including high-yield junk bonds, have negative yields in real yields, which is lower than the current inflation rate (please refer to the chart below for specific data trends).
In addition, according to the latest international capital flows report released by the US Treasury Department on December 16 (there will be a two-month delay in the official data of US Treasuries), foreign investors, including global central banks, sold $43.5 billion of US Treasuries in October, the largest outflow of funds since May this year, of which the global central bank net reduction of US Treasuries for the sixth consecutive month.
It is worth noting that the US Treasury Report shows that China has significantly increased its holdings of US Treasuries by US$17.8 billion in October after a slight increase of US$600 million in September, and the size of us Treasury bonds has increased to 1.065 trillion US dollars, ending the state of sharp reduction of US$21.3 billion in August.
According to the statistics of the financial research team of BWC Chinese Network, From March to September this year, China has been in a net reduction of US treasuries, with an amount of up to 53 billion US dollars (for specific data trends, please refer to the chart below), of which, in addition to the sharp reduction in August, the other two sharp reductions in US bonds were in May and June, with a reduction of 17.7 billion US dollars and 16.5 billion US dollars, respectively.
At the same time, Japan also bought $20.8 billion in U.S. Treasuries in October, a record high of $1.32 trillion, and the United Kingdom and Ireland also increased their holdings of about $14 billion in U.S. Treasuries, respectively, but since March 2020, the supply of U.S. bonds has been rising, and months of high inflation and a downward trend in the dollar index have depreciated dollar bond assets and significantly reduced their attractiveness.
What worries the market most is that the Fed, the largest purchaser of US Treasuries, has also begun to buy US Bonds from November, and has just announced that it has doubled down on US Debt, and with the arrival of the Tightening Phase of quantitative easing by the Fed, if the Fed gradually withdraws from the final purchase order after March 2022, then the demand for US Bonds by the global central banks that originally chose to arbitrage may face a turn. In fact, since March last year, the US federal debt deficit has ballooned and the policy of zero interest rates has been implemented, and the real yield of the 10-year US Treasury, which is the anchor of global asset prices, has been in negative value (see the chart below for specific data), resulting in a decline in attractiveness (see the chart below for specific data trends).
It is in these contexts that some clever international money has begun to move out of the U.S. asset market to replace non-dollar assets such as gold, suggesting that gold is returning from the edge of monetary history to hedge against U.S. Treasury exposure. Data provided to us by the IMF and the World Gold Council shows that we note that the trend of substitution from bonds to gold has continued in recent months.
According to the latest report released by the World Gold Council on December 10, in November, the global gold-backed ETF net inflow was 13.6 tons (about $838 million, AUM increased by 0.4%), the total global gold-backed ETF position rebounded to 3,578 tons (about $208 billion), the global official gold reserves totaled 35,582.3 tons, the data shows that in the first three quarters of 2021, the global central bank net purchase of gold was as high as 393 tons, it is worth noting, According to the association's latest "Global Gold Demand Report", in the third quarter of 2021, China's gold consumption and investment demand also showed a full-fledged explosive growth, and gold imports rebounded significantly (for specific data trends, please refer to the chart below).
According to the report, in the third quarter of 2021, China's total gold imports reached 228 tons, up 300% year-on-year, which also made China's total imports from March to September 2021 reach 513 tons, jewellery demand reached 157 tons, an increase of 32% year-on-year, and the total sales volume of gold bars and coins reached 65 tons, an increase of 12%.
According to data released by the State Administration of Foreign Exchange on December 9, the gold reserves of Chinese Min bank remained unchanged at the end of November and remained unchanged at 1,948.3 tons, unchanged from the end of October. According to an industry report cited by the US financial website Zerohedge on December 13, European and American gold exports to China have also increased significantly, the highest since 2019, of which about 195 tons of the latest batch of gold has arrived in China from the European and American markets in October and November.
A freighter was piled high with boxes of gold
According to data from the Shanghai Gold Exchange (SGE), in September, the gold outgoing volume of the Shanghai Gold Exchange rose sharply to 191 tons, an increase of 27% over the previous month and an increase of 63% over September 2019, and in August, the gold (futures) trading volume of the Shanghai Gold Exchange and the Shanghai Gold Exchange also reached 4163 tons, an increase of 6.5% over the previous month. The total amount of gold trading activity from December 2016 to the present has reached a record 25,300 tons, and the above statistics show that at least 708 tons of gold have arrived in the Chinese market since the beginning of 2021.
China has the world's largest solid gold brick weighing 220 kilograms
In this regard, Jim Rickards, a Wall Street veteran and author of the book "Currency Wars" in the United States, and a well-known economist, also believes that it is not surprising that in recent years, gold has been moving eastward, just as gold has been moving to the US market before the Bretton Woods system. According to the latest report released by the World Gold Council in November, gold still plays the role of an anchor of trust in the monetary and global financial system, while the US dollar cannot do this in the long run in the high inflation environment of the United States, which may really prompt non-US dollar countries to develop their own digital currency trading systems supported by gold, oil and national currencies as soon as possible. (End)