Global central banks have collectively changed their stances. What's the future trend for your stocks and gold?

Just over a month ago, the market generally expected the US benchmark interest rate to remain stable. However, with the release of the latest US inflation data, more and more signals indicate that an interest rate hike may be just around the corner.

Central Banks in the US, Europe, and Japan Hint at Interest Rate Hikes

Reuters reported on the 20th, citing sources, that an interest rate hike by the European Central Bank in June is almost a foregone conclusion. Although the bank kept rates unchanged in April, it has internally discussed an interest rate hike and signaled that, affected by the continuously high energy costs, it is highly likely to raise rates on June 11th.

Regarding future policy trends, the European Central Bank has a vague attitude, aiming to weaken the market's expectation of another rapid interest rate hike in July. Judging from the pricing in the financial market, the market currently expects the European Central Bank to raise interest rates three times within the next year. The first rate hike in July has been fully priced in, and the last rate hike is expected to take place in February next year.

Across the Atlantic, the latest meeting minutes released by the Federal Reserve also sent out signals of an interest rate hike.

According to a report by CNBC on May 20th, the meeting minutes released on Wednesday showed that at the Fed's most recent interest rate meeting, most officials believed that if the US-Iran conflict continued to exacerbate inflation, the Fed would need to raise interest rates.

Although the Federal Open Market Committee (FOMC), which is responsible for formulating interest rate policies, voted again to keep the benchmark interest rate in the range of 3.5% - 3.75%, there were four dissenting votes at this meeting, the highest since 1992, highlighting the obvious intensification of the differences among Fed officials regarding the future direction of monetary policy.

Meanwhile, central banks in Asia are also taking action. Bank Indonesia announced on the 20th that it would raise the benchmark interest rate by 50 basis points to 5.25%, a larger increase than the market expected. This is the first interest rate hike by Bank Indonesia since April 2024.

Junko Koeda, a member of the Policy Board of the Bank of Japan, publicly stated on Thursday (May 21st) that with the price pressure brought by the US-Iran conflict, core inflation may rise above the 2% target, and the Bank of Japan should raise interest rates at an "appropriate pace." This statement further increased the market's expectation that Japan will raise interest rates as early as June.

Before the US-Iran conflict, inflation in the US had eased and was gradually approaching the Fed's 2% target. At that time, the market generally expected interest rates to decline. However, with the closure of the Strait of Hormuz causing disruptions to energy transportation, the prices of commodities such as crude oil soared sharply, and the inflation situation reversed again.

Data shows that the year-on-year increase in the US Consumer Price Index (CPI) in April reached 3.8%, much higher than 2.4% in February. Moreover, this inflationary pressure is gradually spreading to more sectors and across the globe.

Even if the Strait of Hormuz reopens tomorrow, global central banks still need to deal with the inflation caused by its actual closure for several months.

Gold and Stock Markets Under Pressure

Recently, the international gold price has corrected. In the evening of May 19th, Beijing time, the spot gold price fell below $4,500 per ounce. One of the main reasons behind this is the market's expectation that the Fed may restart interest rate hikes.

Li Gang, the research director of the China Foreign Exchange Investment Research Institute, told Zhongxin Jingwei that the fact that major central banks around the world are sending out signals of interest rate hikes again may mean that the global liquidity environment is shifting from the previous "loose expectation" back to "maintaining high interest rates for a longer period."

In Li Gang's view, in the short term, it will exert certain pressure on gold. Because an interest rate hike will push up the US dollar interest rate and the global real interest rate. As a non-interest-bearing asset, the opportunity cost of holding gold will increase, and some funds will flow back to US dollar assets and the bond market. Therefore, the gold price usually experiences a correction first.

Xu Jiaqi, an analyst at the Research and Development Department of Orient Jincheng, analyzed that the current increase in the expectation of interest rate hikes by global central banks is mainly due to the rise in global inflation pressure brought by geopolitical risks. Once rapid interest rate hikes lead to an increase in the risk of economic stagflation and financial market turmoil, the safe-haven property of gold may come into play and provide some support for the gold price.

After the outbreak of the US-Iran conflict, the global stock market was severely hit. However, recently, the three major US stock indexes have continuously reached new all-time highs, especially the growth sectors such as chips and semiconductors have been favored by funds. These high-growth enterprises are more sensitive to the cost of funds.

Li Gang said bluntly that a high-interest rate environment will compress market valuations, especially putting greater pressure on technology growth stocks. At the same time, the increase in corporate financing costs will also affect future profit expectations. Therefore, if global central banks synchronously turn hawkish, the volatility of the global stock market will probably increase significantly, and some high-valuation sectors that previously relied on low interest rates may be revalued.

Yang Delong, the chief economist and fund manager of Qianhai Kaiyuan Fund, said that the increasing calls for interest rate hikes by central banks around the world have directly boosted the US dollar index and the yield of US Treasury bonds. This is bad news for the global stock market and may also trigger a stock market adjustment, especially for the US stock market, which has reached new highs recently and accumulated a large number of profit-taking positions. Therefore, the impact on the US stock market is particularly obvious.

Li Gang pointed out that overall, the current market is gradually shifting from "interest rate cut trading" to "inflation and high-interest rate trading," and the volatility of global asset prices may increase significantly in the future.

This article is from the WeChat official account “Zhongxin Jingwei” (ID: jwview), author: Wei Wei, published by 36Kr with authorization.