Shrink the balance sheet by 95 billion yuan per month

Many netizens suspect that A-shares are an important factor in shorting the global stock market, because after a Qingming holiday, when A-shares reopened, the U.S. stocks that were originally rising well experienced two consecutive days of significant declines.

Last night, the three major U.S. stock indices fell across the board again, with the Nasdaq index falling more than 2%, reaching 2.22%. Most of the U.S. technology stocks and Chinese concept stocks listed in the U.S. also fell.

The Federal Reserve's meeting report shows that it is about to start shrinking its balance sheet, with a monthly reduction slightly smaller than market expectations, but this news still made the market panic.

01. U.S. stock market decline

Before mid-March, U.S. stocks had been falling. The Nasdaq index hit the lowest point of this round of decline at 12,555 points on March 14, and then began a rebound, reaching a high of 14,646 points. This rebound was very strong, with a 16.65% increase in just two weeks.

However, in the past two days, the Nasdaq index has experienced a correction, with a decline of more than 2% for two consecutive days.

Last night, U.S. airline stocks led the decline, with several individual stocks falling by 2% to 4%. Large technology stocks generally fell, with chip stocks like Nvidia falling by 5%, and new energy vehicle Tesla falling by another 4%.

However, similar to the situation in Hong Kong and A-shares, the pharmaceutical sector performed well. It seems that the impact of the pandemic will continue to be a very significant uncertain factor in the stock market for some time to come. Stocks are falling because of the pandemic, and stocks are rising because of the pandemic.

A batch of popular Chinese concept stocks fell, with the Nasdaq China Financial Index falling by 4.64% the day before, and falling by another 1.7% yesterday.02, U.S. Treasury Yield Inversion

Currently, market analysts are generally paying close attention to the inversion of the U.S. Treasury yield curve, which is a dangerous signal that the U.S. economy may fall into a recession.

Since 2019, even after the outbreak of the pandemic, this phenomenon did not occur, but last week saw the inversion of the two-year and 10-year U.S. Treasury yields. It seems that overnight, bonds are no longer popular, and everyone is selling bonds.

Starting from the recent trading days, the yield on two-year Treasury bonds has been higher than that on 10-year Treasury bonds. Although the yield on two-year Treasury bonds fell by 1 basis point and the yield on 10-year Treasury bonds rose by 4 basis points, the yield on two-year bonds is still higher than that on 10-year bonds.

However, it is still difficult to prove anything based solely on this data. The recently released employment data shows that the economy is still doing well. Although the employment data is slightly lower than expected, the unemployment rate is better than expected. Perhaps we should also pay attention to employment data like the Federal Reserve, and only when the unemployment rate begins to rise will the economic recession come.

However, due to the monetary environment becoming more tightening, the stock market has also experienced a significant decline.

Whether it is the S&P Index or the Nasdaq Index, both have been rising in the past three weeks. As the recent remarks of Federal Reserve officials have become more hawkish, the market has begun to fluctuate.

The next Federal Reserve interest rate meeting will be in mid-May, and from the time point of view, there is still more than a month left, but people have already started to feel uneasy about it, and the fluctuations in the stock market may continue to increase.

03, Balance Sheet Reduction

The Federal Reserve has finally released the minutes of the March meeting, and the report indicates that multiple interest rate hikes of 50 basis points may be needed in the future, which has continuously increased the possibility of a 50 basis point rate hike in May.The market previously forecasted that the Federal Reserve would shrink its balance sheet by reducing assets by $100 billion per month. The recently released minutes of the meeting indicate that this is roughly in line with market expectations, with the upper limit of the reduction being $95 billion per month, slightly lower than what the market had anticipated.

However, even with this adjustment, it cannot be considered a dovish or overly moderate stance, especially when compared to previous experiences. The pace of this round of tightening policies, from reducing the scale of bond purchases to raising interest rates to shrinking the balance sheet, is still too fast.

At present, it is still difficult to predict whether the U.S. economy can withstand such turmoil.