Overseas, in terms of geopolitics, the conflict between Russia and Ukraine has eased, and US and European sanctions have continued to escalate. After nearly half a month of conflict between Russia and Ukraine and three rounds of negotiations, the two sides are close to reaching a compromise on signing relevant agreements. At the same time, US and European sanctions against Russia continued to escalate, including stopping the import of oil, natural gas and coal from Russia and canceling the most favored nation treatment of Russian trade. In terms of the epidemic situation, the newly confirmed cases continued to decline in February and repeated in some areas in March. New covid-19 confirmed cases and new deaths worldwide continued to fall in February. Since March, the rapid spread of Omicron virus has caused repeated outbreaks in the West The Pacific Securities Co.Ltd(601099) region, including South Korea and Vietnam, with a sharp increase in new confirmed cases and deaths. In contrast, covid-19 mortality decreased again after 3 months. On the economic front, US inflation hit a new high and the market waited for the fed to raise interest rates. Following the strong non farm data in January, the US employment market remained resilient in February, with 678000 new non farm workers, the unemployment rate fell to 3.8%, and wages remained high. Meanwhile, the year-on-year growth rate of CPI in the United States in February reached 7.9%, a new high in nearly 40 years. Considering that the rise in commodity prices caused by the conflict between Russia and Ukraine is not fully reflected in the CPI data in February, this means that inflation may rise further in the future. The market’s concern about global “stagflation” has become a constraint for the Federal Reserve to raise interest rates aggressively. Fed chairman Powell said it was appropriate to raise interest rates by 25bp at the end of the policy meeting in March.
From the perspective of China, the financial data in February was less than expected, and the two sessions showed their determination to “stabilize growth”. After the release of the financial data in February, both the total amount and structure were lower than the market expectations. However, based on the data from January to February, social financing and credit achieved positive year-on-year growth on the basis of last year’s high base, indicating that the signal of “wide credit” is still on, and further strengthening the market’s expectation of loose monetary policy. This year’s government work report set the GDP growth target at about 5.5%. Taking into account the widespread epidemic in China, the downturn in the real estate market and the complex economic and financial environment abroad, the government’s determination and confidence in steady growth have been further demonstrated. The policy tool box for realizing “steady growth” has also been opened, the monetary policy has been actively escorted, and the implementation of prudent monetary policy has been strengthened; The fiscal policy is active and promising, including “the scale of expenditure is more than 2 trillion yuan larger than last year” and “tax rebate and reduction is about 2.5 trillion yuan”.
In the stock market, multiple negative factors resonated, and the A-share market continued to decline. Affected by geopolitical conflicts and the tightening of global liquidity expectations, major overseas market indexes continued to fall in February after experiencing sharp fluctuations in January, and fell again in March. Specifically, in February, the Dow Jones index fell 3.53%, the NASDAQ index fell 3.43%, and the S & P 500 index fell 3.14%; France’s CAC40 index fell 4.86% and Germany’s DAX index fell 6.53%; The Nikkei 225 index fell 1.76%, and the Korea composite index rose 1.35%; The Hang Seng Index fell 4.58%. The A-share market rebounded after the Spring Festival, but affected by the peripheral markets, the rebound was limited. In February, the Shanghai stock index rose 3.00% and the gem index fell slightly by 0.95%. In March, the A-share market fell sharply, mainly due to the superposition of external negative factors, the concerns of the Chinese market about liquidity, the spread of the epidemic and the fact that the latest financial data were less than expected, which spread panic in the city in the short term.
In the bond market, the yield of US bonds increased by another 2%, and the 10y-2y interest rate spread continued to narrow. Affected by the conflict between Russia and Ukraine, the continuous rise of US inflation and the higher than expected non-agricultural data in February, US Treasury bond yields fell first and then rose, and the trend of treasury bond yields in other major developed countries was similar. As of March 11, the yield of 10-year US bonds was 2.0%, the yield of 2-year US bonds was 1.75%, and the 10y-2y spread of US bonds continued to narrow. Under the expectation of stagflation and the upcoming interest rate increase cycle, we must be vigilant against the market shock caused by the upside down of yield. For treasury bonds, the expectation of “wide credit” is blocked, and the market expects to cut interest rates again. After the release of Tianliang social finance in January, the yield of 10-year Treasury bond continued to rise, once rising to 2.85%. However, the social finance was less than expected in February, and the market expectation of interest rate reduction was strengthened again. The yield of 10-year Treasury bond fell rapidly to 2.77%, and the interest margin of U.S. debt narrowed to 85bp in the middle of 10 years.
In terms of real estate, the data in February is not optimistic because of the strengthening of urban policy implementation. The latest released financial data show that residents’ medium – and long-term loans have experienced negative growth for the first time, indicating that the demand for house purchase has approached the freezing point, indicating that the upcoming residential sales price data of 70 large and medium-sized cities in February is not optimistic. However, considering the important role of stabilizing real estate in stabilizing growth, under the main tone of “no speculation in housing”, the intensity of “implementing policies due to the city” will continue to strengthen, and the real estate market is expected to stabilize gradually in the future.
In terms of commodities, the conflict between Russia and Ukraine eased, and oil and gold rose and fell. Under the influence of the continuous conflict between Russia and Ukraine, the sanctions imposed by the United States and Europe on Russia and the insufficient idle capacity of OPEC, Brent crude oil rose sharply in February, once breaking the $130 / barrel mark, setting a new high since 2008. After that, it fell back quickly after the conflict between Russia and Ukraine eased. Gold is advancing by leaps and bounds under the background of risk aversion and high inflation. Comex gold once approached the historical high in 2020 and also rose and fell due to the easing of the conflict between Russia and Ukraine.
In terms of asset allocation, for the stock market, although the A-share market fell sharply in March, it was more affected by short-term factors and panic. In the medium and long term, the expectation that the steady growth policy will promote the recovery of enterprise prosperity is relatively clear, and it is expected to bring the low point of enterprise profitability upward. The current market is expected to bring opportunities for low-level allocation within the year after the release of short-term panic. In terms of the bond market, the social financing and credit data in February were less than expected, and the market expected to cut interest rates again. However, considering that the tightening of liquidity in the United States is imminent, even if China cuts interest rates, the yield of 10-year Treasury bonds will be limited, with strong support around 2.67% – 2.7%. In terms of commodities, under the easing of the conflict between Russia and Ukraine, the short-term rise driven by sentiment has come to an end, and the future oil price will depend more on the actual supply and demand. It is suggested to pay attention to the global economic recovery, US and European energy sanctions against Russia and OPEC production capacity. For gold, although it is affected by negative factors such as the Fed’s interest rate hike and table contraction, and the risk aversion caused by geopolitics has been released in the short term, considering the market’s concern about the “stagflation” of the US economy, the upward trend of gold is expected to continue, and its allocation value is more prominent under the poor performance of the stock market.
Risk tips: the economic downturn exceeded expectations, inflation continued to deteriorate, the epidemic development exceeded expectations, the policy promotion was less than expected, the global liquidity contraction exceeded expectations, and geopolitical conflicts exceeded expectations.
