How do you view the reverse breaking of the RMB 7? Recently, as the suppression from the US dollar index has slowed down, non-US currencies have appreciated to varying degrees, especially the British pound and Japanese yen, which have fallen significantly in the previous period, are more resilient to recovery. Among them, the spot exchange rate of USD/RMB continued to decline from a high of 7.32, and reversely broke 7 on December 5.
From the perspective of external factors, the U.S. non-agricultural data exceeded expectations, but it is difficult to hide the impact of the downward pressure on the U.S. economy on the job market. The main line of the U.S. dollar index transaction may still be "expected interest rate hikes to slow down." In addition, the market has a poor rhythm in the game between the ECB and the Fed's monetary policy orientation, and the market is still playing between the ECB's "hawk" and "dove" orientation, which may support the short-term performance of the euro to a certain extent. On the whole, the current inflection point of the US dollar index is likely to be confirmed, and the external pressure on the renminbi has further eased. Even under the extreme assumption of an unexpected recession in the global economy, the appreciation of the dollar driven by rising risk aversion may only be temporary.
From the perspective of internal factors, weak exports have not constrained the short-term strengthening of the renminbi. We believe there are three reasons for this: first, from the perspective of trade surplus, due to the decline in imports, the trade balance remained at a certain scale of surplus, supporting the current account surplus to remain high; second, the trade surplus accumulated in the previous period has not yet Completely converted into demand for foreign exchange settlement, seasonal factors superimposed on the expectation that the RMB will be stronger in the short term may boost the release of demand for foreign exchange settlement; third, the current trade side is not the primary factor leading the trend of the RMB. The optimization of epidemic prevention and control policies, the improvement of economic recovery expectations under the "three arrows" of real estate, and the reversal of the capital situation in the stock and bond markets are all positive for the RMB.
What impact will a stronger exchange rate have on the stock and bond markets? In the short term, the US dollar is weak, the domestic economy is expected to improve, and the backlog of foreign exchange settlement demand at the end of the year is superimposed. We believe that the RMB may remain strong under the concentrated release of bullish. Looking forward to the future, after the market digests the positive factors and the demand for foreign exchange settlement is released, the RMB may return to a volatile situation. Whether the future economic fundamentals can be successfully reversed from the current "weak reality" state will determine whether the RMB can continue to appreciate next year. For the A-share market, since 2017, the linkage between the RMB exchange rate and A-shares has increased. At present, the internal and external factors that boost the strong performance of the renminbi are also good for A shares. Looking back, further optimization of epidemic prevention policies and efforts to stabilize growth policies are expected to increase market risk appetite and drive the A-share market to continue to recover. In the bond market, although the easing of internal and external pressure on the renminbi has eased the constraints of the exchange rate on monetary policy to a certain extent, the current Fed has not yet ended the interest rate hike cycle, and the OMO and MLF interest rate cut windows in the aggregate monetary policy are still immature. The monetary policy is more focused on the promotion of loose credit, so the basic logic of the bond market will also change to "broad credit". The 10-year treasury bond yield of 3.0% may be the direction of the bond market from the end of this year to the beginning of next year. In addition, from the perspective of foreign capital holdings of bonds, the current degree of inversion between China and the United States has eased, the appreciation of the renminbi, and the addition of overseas holiday factors. It is expected that the pace of foreign capital's reduction of renminbi bonds may further slow down, but the current bond market adjustment period, Foreign capital may maintain a wait-and-see attitude in the short term, and foreign capital will have to wait to increase their holdings of RMB bond assets again.