Last night there were two major negatives:
Fed officials made another hawkish remark last night: on Monday (May 22), local time, St. Louis Fed President James Bullard said that he expects the Fed to need two more rate hikes this year to calm inflation; Minneapolis Fed President Neel Kashkari, 2023 FOMC voting committee, said this week: "This is the most uncertain period we have experienced in terms of understanding underlying inflation dynamics. So I have to let inflation guide it, and I think the Fed is letting inflation guide policy. Probably the Fed has to make the Fed funds rate above 6%."
In addition, the impasse on the US debt ceiling has been slow to break. Four months have passed since the US government debt reached the legal ceiling of $31.4 trillion, and the US Treasury Treasury's cash surplus on hand has recently plummeted, heightening concerns about a default on US government debt. According to the deadline warned by Treasury Secretary Janet Yellen - that is, June 1, the "countdown" to the default of US bonds has begun.
The U.S. debt ceiling negotiations suffered another setback this past weekend, with House Speaker McCarthy accusing White House officials of backtracking in negotiations to raise the debt ceiling and set federal spending levels. Although Biden and McCarthy had an emergency call on Sunday after the G7 summit, and the two sides agreed to meet again on Monday, the repeated tug-of-war of the negotiation process continued to "pause, restart, and pause" still worries many market participants.
At present, the US debt default has entered the "countdown", and if it is not successfully resolved this week, the impact on global financial markets will be unpredictable. So, even if the market believes it will eventually be resolved, just in case the market will reduce its position and hedge, the risk aversion of the U.S. Treasury was sold off, causing U.S. Treasury yields to soar, rising above 3.7%, hitting a new high since March.
This has led to a further widening of interest rate differentials between China and the United States, and the pressure on the depreciation of the renminbi has increased. Even though the central bank shouted the renminbi last Friday to crack down on speculative sentiment, the offshore renminbi continued to depreciate this week after a slight rebound, depreciating more than 200 points this morning. Risk aversion coupled with the depreciation of the renminbi, foreign capital sold more than 3 billion yuan in early trading, bringing certain pressure to A-shares.
At press time, the Shanghai Composite Index was down 0.60% and the ChiNext Index was down 0.15%. The turnover of the two cities continued to shrink, indicating that the market funds are very cautious, the wind is low, and the rise of the sector under the contraction is not sustainable, mainly based on sector rotation.
In terms of industries, industries such as pharmaceuticals and biology, general, building materials, basic chemicals, and automobiles led the rise, while non-bank finance, public utilities, national defense industry, transportation, banking and other industries led the decline.