The latest minutes of the Fed meeting show that Fed officials generally believe that the Fed should start to reduce the scale of bond purchases from mid-November, and the increase in US CPI released on Wednesday (October 13) has exceeded expectations, highlighting that the economy is facing continued inflationary pressure; inflationary panic has forced HSBC’s well-known bond bulls made concessions to raise the year-end U.S. Treasury yield expectations. Former debt king Gross expects the 10-year yield to rise to 2%, which means that the opportunity cost of holding gold will continue to increase, which is negative in the medium and long term. Gold price trend.
Minutes of the Federal Reserve Meeting: Committee members expect the code reduction will begin in mid-November or mid-December
Fed officials generally believed last month that even if the delta strain continues to pose a resistance to the economy, the Fed should begin to reduce monetary stimulus measures during the epidemic period from mid-November or mid-December.
The minutes of the September 21-22 Federal Open Market Committee (FOMC) meeting released on Wednesday showed that “the participants generally agreed that while the economic recovery is still on the right track, it is appropriate to gradually reduce debt purchases until the middle of next year. Ending before and after. Participants pointed out that if the decision to initiate debt reduction is made at the next meeting, it may start in mid-November or mid-December."
Fed officials hinted last month that they are about to start reducing the size of their monthly asset purchases by $120 billion. Chairman Powell told reporters that this process may begin in November at the earliest and end around the middle of 2022. The minutes of the meeting show that Fed officials are facing a high degree of uncertainty in the two missions of achieving full employment and price stability.
Officials discussed the specific path for the reduction: "Reduce the size of monthly asset purchases, including a reduction of US$10 billion in purchases of US Treasury bonds and a reduction of US$5 billion in purchases of mortgage-backed securities."
Inflation is rising at the fastest rate in years, well above the Fed’s 2% target. Some officials said that supply bottlenecks and production problems have caused inflationary pressures to last longer than expected.
Fed officials predicted last month that inflation will fall to near the target level next year, but 9 out of 18 people expect the Fed to raise interest rates in 2022, which is higher than the 7 in June.
US consumer prices rose more than expected in September, highlighting the continued inflationary pressures facing the economy
The increase in consumer prices in the United States in September exceeded expectations, resuming the previous accelerated upward trend, highlighting the continued inflationary pressure facing the economy.
According to data released by the US Department of Labor on Wednesday, the consumer price index in September rose 0.4% from August. The year-on-year increase reached 5.4%, the largest year-on-year increase since 2008. Excluding volatile food and energy, core inflation rose 0.2% month-on-month.
The median forecast of the economists surveyed is that the overall CPI rose 0.3% month-on-month in September, and the core CPI rose 0.2%.
Unprecedented shipping challenges, shortages of raw materials, high commodity prices and rising wages have all contributed to a sharp rise in producer costs. Many manufacturers passed part of the rising costs on to consumers, resulting in longer-lasting inflation than many economists had previously expected, including Fed economists.
The increase in inflation in September reflected rising food and housing costs. At the same time, indicators for the prices of second-hand cars and trucks, clothing and air tickets have cooled.
CPI data reflects the complex situation in the economy. Hotel prices have fallen, reflecting the impact of the delta mutant strain on travel, but inflation is expanding beyond categories related to economic reopening.
Rising house prices are beginning to seep in the inflation data. Rents for major residences rose 0.5%, the largest increase since 2001. At the same time, an indicator of homeowners’ rent levels recorded the largest increase in five years. Housing costs are considered a more structural component of the CPI, accounting for about one-third of the overall index, and may become a more permanent driver of inflation.
The report may reinforce the Fed’s intention to reduce the scale of asset purchases in the near future, especially when the supply chain problems that plague companies show little signs of abating.
Survey data released by the Federal Reserve Bank of New York on Tuesday showed that US consumer expectations for inflation continued to rise in September, with one-year and three-year inflation expectations rising to record highs.
Looking ahead, rising energy prices will further erode American salaries. Although wages have risen in recent months, rising consumer prices are eroding people's purchasing power. Another report released on Wednesday showed that the inflation-adjusted average hourly wage increased by 0.2% month-on-month in September, but fell by 0.8% year-on-year.
Inflation panic forces HSBC's well-known bond bulls to make concessions and raise year-end U.S. Treasury yield expectations
The surge in inflation has forced Steven Major, a well-known bond bull at HSBC Holdings, to increase bond yield expectations at the end of the year, but he and his team still insist on the long-term view that ultra-low interest rates will continue, and believe that the rise in yields will be short-lived.
HSBC on Wednesday changed its expectations that it had been insisting on since February, raising its year-end forecast for the yield on the US 10-year Treasury bond from 1% to 1.5%. The current rate of return is around 1.55%. However, the bank maintained its forecast for the end of 2022 at 1%.
Major said that the passage of time means that the forecast for 2021 now falls under the tactical vision of 1-3 months, which requires the bank to adjust its forecast according to market conditions, but the long-term outlook remains unchanged.
Major said, "With the arrival of the end of 2021, economic growth is expected to decline, inflation expectations will become a driving factor," "but our forecasts and methods are largely focused on long-term drivers. Between forecasting climate change and weather forecasts There is a difference."
As HSBC adjusts its forecasts, the market is increasingly worried that consumer price increases may not be as short-lived as the central bank previously thought. The recent inflation panic stems from many factors such as tight supply chains, soaring commodity prices, rising demand after the lifting of the epidemic prevention blockade, continuous stimulus measures, and labor shortages. The benchmark 10-year U.S. Treasury bond yield rose above 1.6% this Monday, as traders bet that the Fed will tighten policy sooner than expected.
But Major still believes that the rise in inflation will be temporary. Although he acknowledged that there is a possibility of strong economic data and bond yields overshooting in the short term, he expects that these data will eventually fall back because it is difficult for the central bank to reduce interest rates as the government struggles to cope with the rapidly swelling debt in the early stages of the outbreak. The current level has been raised too much. Moreover, this has not taken into account long-term structural factors such as population structure and technology, which he believes are deflationary factors.
Major said in an interview. "I know people are worried about inflation, and I don't underestimate inflation, but I just think that the factors that drive the current narrative will not change our long-term outlook. Temporary factors should not change one's basic views. Only we can prove it. All central bank models are wrong, and we will change our views."
HSBC also raised its year-end forecast for German bond yields by 20 basis points to -0.30% and raised its forecast for British government bond yields by 50 basis points to 1%. But the bank also predicts that by the end of 2022, German and British government bond yields will fall to -0.50% and 0.75%, respectively.
Former debt king Gross said that the U.S. bond bear market "would not be a disaster" and the 10-year yield is expected to rise to 2%
Bill Gross, who compared bonds to "junk", said that the US Treasury bond bear market "will not be a disaster."
In his latest investment outlook report, the 77-year-old former debt king first complained a lot about the lawsuit he had recently entangled, and then the topic turned to trading advice to retail investors. He reiterated that the 10-year U.S. Treasury bond yield may rise from the current 1.6% to 2% in the next 12 months, and said that given the economic uncertainty, even if the bond may incur losses, it can still play a role in the investment portfolio.
Gross, who co-founded the Pacific Investment Management Corporation (PIMCO) in the 1970s, wrote, “The market may have seen a long-term bottom in interest rates, but it is too much to expect a 30-year bear market comparable to the previous 30-year bull market. Bonds.” The days of ‘good wine and flowers’ may be over, but they may do well as investors wait for the uncertainty related to the U.S. budget to fall, China’s GDP growth and the northern hemisphere winter approaching energy price spikes."
Gross said that he continues to short "net celebrity stocks", including GameStop Corp. and AMC Entertainment Inc., "but at the same time he is also wary of occasional volcanic eruptions."
He stated that his investment portfolio "holds a lot of natural gas pipeline partnerships," offering dividend deferred taxes and yields of up to 10%.
On the whole, inflationary pressures also provide support for spot gold prices in the short-term, because investors have long believed that gold has the property of resisting inflation, but in the medium and long-term, the upside of gold prices may be limited in the future because of the higher US Treasury yields. , Will continue to increase the opportunity cost of holding gold, which is detrimental to the price of gold.
GMT+8 09:54, spot gold is now quoted at $1,789.13 per ounce.
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