[Tokyo 8th] --The US Federal Reserve's (FRB) primary proposition is "controlling high inflation," and it seems likely that it will maintain a strong tightening stance. With the strong suggestion of Fed Chair Powell, the market has already factored in a "0.5% rate hike" at the US Federal Open Market Committee (FOMC) in June and July. The current focus is shifting to whether the tightening pitch will ease after September or whether the "0.5% rate hike" will continue.


In this regard, Bostic, the governor of the Atlanta District Federation, said, "Inflation is likely to be in the high 3% range at the end of the year, and a temporary suspension of interest rate hikes in September may make sense.", There was a phase in which US long-term interest rates fell. Yields on 10-year US Treasuries fell from a peak of 3.201% on May 9 to 2.702% on May 26, and federal funds rate (short-term policy rate) futures also rose by 0.5% in September. There was a day when the probability of reading "dropped from the temporary peak of over 60% to the 30% range.


However, Fed Vice-Chair Brainard said, "It seems very unlikely at this point that we will suspend rate hikes in September." In addition, he said, "If the monthly inflation index does not confirm a slowdown, it may be appropriate to have another meeting to implement policies at the same pace." In other words, it suggests the possibility of a "0.5% rate hike in September".


Waller also said, "In a few meetings, we support a further 0.5% rate hike. Specifically, unless inflation subsides until it approaches the authorities' target of 2%, a 0.5% rate hike. Will not be excluded from the options. " In addition, Mester, Governor of the Cleveland District Fed, made a similar statement.


Taken together, Bostic's view is exceptional, and the Fed is likely to continue raising rates quickly to a "neutral interest rate" (2.4% median in March FOMC). A reasonable interpretation would be that the rate hike after September would depend on actual inflation statistics.


Not only the Fed but also the Central Bank of Canada implemented a "0.5% rate hike" on June 1. "We may take even stronger steps if necessary to curb inflation," McClem warned. The central bank has already implemented balance sheet compression (QT), but it seems that it will continue to raise interest rates continuously in order to curb high prices.


In addition, Mexico has already raised interest rates eight times in a row since June last year but has continued to raise interest rates by 0.5% since December last year, and this May was also in the range of 0.5%. Free trade agreements have been signed between the United States, Canada, and Mexico, and "people, goods, and money" are free to come and go, and all of them are suffering from high inflation.


The year-on-year rate of change in April Consumer Price Index (CPI) of these three countries is 8.3% for the United States, 6.8% for Canada, and 7.7% for Mexico, which are at historically high levels. The "0.5% rate hike" is not special and seems to be becoming the standard in North America.


Needless to say, the central banks of each country are tightening their stance because high inflation continues. Therefore, the trend of crude oil prices, which is one of the most symbolic commodities, will have a great influence on monetary policy. "OPEC (Organization of Petroleum Exporting Countries) Plus" suddenly announced that it will expand its monthly production increase target (daily volume, same below) from the conventional 432,000 barrels to 648,000 barrels in July and August. There were many reports that the conventional policy would be maintained, which made the market more surprising.


WTI crude oil futures prices were on the verge of $ 119.9 per barrel on May 31 but turned to a sharp decline, and on June 2, there was a phase in which they temporarily hit a low of $ 111.2. rice field. However, there are many skeptical views about how this increase in production of 648,000 barrels will affect the supply and demand of crude oil.


First, even the conventional target of 432,000 barrels to increase production is not being adhered to. Looking at OPEC's production volume trends, it has only increased slightly to 28.85 million barrels in May this year, compared to 28.09 million barrels in December last year, and it does not reach the monthly target of 432,000 barrels increase. There are many cases.


In particular, it will be important to increase OPEC production after March, when Russia began to tighten sanctions from Europe and the United States during the Ukrainian War, but the situation is virtually flat. Libya and Nigeria, OPEC member countries, have poor domestic security, weak supply systems, and unstable production.


After all, Saudi Arabia has a production capacity of 11.5 million barrels / May production of 10.43 million barrels (same below), the United Arab Emirates (UAE) has 4.2 million barrels / 3.04 million barrels, etc. Although it has the production capacity, the reorganization of the "nuclear agreement" has been frustrated, and it is difficult to hope for the "release of sanctions = increased production". Unless Saudi Arabia, which is in a leading position in OPEC, turns to an aggressive production increase, it will be difficult to ease the supply and demand of crude oil.


Second, Russia's crude oil production is declining due to sanctions from the West and the effects of the Ukrainian war. Russia has not disclosed crude oil production since March, but the International Energy Agency (IEA) estimates that Russia's production in April will fall short of the plan by 1.34 million barrels. With the addition of the European Union's (EU) embargo on Russian crude oil, it is difficult to imagine a scenario in which an increase in production of 648,000 barrels will ease the tight supply and demand of crude oil.


Based on this interpretation, the price of WTI crude oil futures temporarily rose to $ 120.9 a barrel on June 6. The US regular gasoline retail price (national average) announced by the National Automobile Association is also hitting a record high of $ 4.919 per gallon (3.785 liters) on June 6. The CRB Commodity Index, which is a representative commodity index, has also remained at 327.1 as of June 7, the highest level since 2011.


Naturally, high inflation is expected to continue, and it seems difficult to ease the tightening stance of the central banks of each country. The European Central Bank (ECB), which has stubbornly maintained its negative interest rate policy, has also declared a de facto rate hike on the ECB's blog by Governor Christine Lagarde, and the Bank of England has repeatedly raised interest rates since December last year.


Under these circumstances, the yield on 10-year US government bonds reversed, and on June 6, there was a phase in which it broke through the 3% mark again. The rebounding force of US stocks, which had been on a rebound trend, is declining. The FRB's strong tightening stance, commodity prices such as crude oil that continue to soar, turmoil in the trailing supply chain, historic high levels of CPI, rapidly rising risk of economic slowdown, and endless intensification Considering the Ukrainian War, we assume that the US stock market is at high risk of continuing to develop heavily.


However, the market price does not go in only one direction. Due to the decline in long-term interest rates, as in the latter half of May, the sunny days may temporarily widen. The problem is the sustainability of the sunny days (rise). It is important to recognize that it is not a long azure sky in summer but a short sunny day before the rainy season.


On the other hand, the relative performance of Japanese stocks is good. Comparing the rate of increase/decrease since the beginning of the year, the Dow Jones Industrial Average is minus 8.69%, the S & P 500 is minus 12.70%, and the Nasdaq Composite is minus 22.18%, the German DAX is minus 8.36%, and the French CAC. The Nikkei average is minus 2.94% and the TOPIX is minus 2.27%, while the IMIB is minus 9.12% and the IMIB is minus 9.12%. No consideration).


After all, policy support such as 1) continuation of the BOJ's ultra-easy measures, which has become rare in the world, 2) economic stimulus measures with a large supplementary budget before the upper house election in July, and 3) relaxation of corona regulations, has been effective. Seems to be there. The approval rating of Prime Minister Fumio Kishida is also unusually high after six months in office, and it seems that political stability is also positive.


Before and after the LDP presidential election last year, investors announced "increased financial income tax" and "restrictions on stock repurchase", and investors' evaluation was harsh. However, it has now launched an "asset income doubling plan." Prime Minister Kishida advocates "hearing power," but the market may have given a favorable evaluation to such transformations.


In addition, the depreciation of the yen cannot be overlooked. The dollar/yen pair has been on the 130-yen level again, but it has also exceeded 140 yen against the euro. There are many high-priced stocks of electric appliances and precision since the beginning of the year, but typical stocks related to the depreciation of the yen such as cameras, watches, copiers, and OA are particularly strong.


It seems that the "Japan-US stock decoupling theory" (US stocks will continue to be weak and Japanese stocks will continue to be strong) is likely to become popular in Kabutocho. However, Japanese stocks, especially the Nikkei 225, seem to have a strong character of the "World Economic Linkage Index". If the global economy slows down, the downside pressure on demand will naturally increase, especially for export stocks. Although there is support for the depreciation of the yen, I think that the logic that only the Nikkei 225 is self-reliant contains a big contradiction.


For the time being, the outperforming of Japanese stocks is likely to continue, but on the other hand, I would like to keep in mind the appropriate profit-taking sales.