(1) global economic and financial trends: the world has entered a period of austerity.
This week, the Fed's policies and the situation in Ukraine continued to affect the market. As the voice of the hardliners of the Federal Reserve becomes louder and louder, the market is more worried about the economic recession. US Treasury yields rose sharply, and the yield of 10-year Treasury bonds rose to a high of 2.72%. At the same time, the continuous war in Ukraine still shrouds the market. This week, the United States and the European Union imposed new sanctions on Russia. The tightening policy of the Federal Reserve and the war in Ukraine have been the main macro variables affecting domestic and foreign markets in the near future. The market adjustment earlier this year was mainly due to rising inflation and the Fed's interest rate hike. Recently, the narrowing of the yield gap between 10-year and 2-year treasury bonds has exacerbated the risk of recession. We believe that the stock market has not fully reflected the possible slowdown in economic growth and profit growth. Therefore, in the coming period of time, further sanctions against Russia and the rapid tightening of liquidity by the Federal Reserve will probably lead to increased market volatility.
(2) comments on important economic data in Europe and the United States: inflation in Europe and the United States continues to remain high.
The personal consumption expenditure inflation index (PCE), the Fed's preferred inflation indicator, rose 6.4% year-on-year in February, in line with expectations and the highest level since 1982. The core PCE was 5.4%, slightly lower than the expected 5.5%, but also the highest level in nearly 40 years. Given the rise in oil and commodity prices in March, we expect overall inflation to rise further in the coming months. Given that the sanctions against Russia are still escalating, we do not expect a significant easing in inflation until the second half of this year. According to Eurostat, the consumer price index (CPI) in the eurozone rose 7.5% year-on-year in March, up from 5.9% in February. The war in Ukraine led to the rise of energy prices across the European continent and exacerbated inflation. With the increasing impact of the situation in Ukraine on the energy market, we expect inflation in Europe to remain high in the short term.
(3) China's credit and liquidity: monetary easing still needs to be strengthened, and the reduction of reserve requirements and interest rates can still be expected.
At the end of March, in order to hedge the tight liquidity at the end of the month, the central bank launched more actively in the open market. In April, the central bank's investment in the open market turned stable again, returning to the daily investment of 10 billion yuan of 7D reverse repo (the interest rate remained at 2.1%). In terms of money market interest rates, as of April 8, dr007 and shibor1w were 1.94% and 1.99% respectively, down about 31 BP and 21 BP respectively compared with March 31, lower than 2.1% of the reverse repo rate, indicating that the current money market liquidity is relatively abundant. Since the end of March, due to the impact of international geopolitical conflicts and the unexpected new round of epidemic in China, the expected margin of monetary policy easing has increased under the significant increase of economic downward pressure, and the yield of 10-year Treasury bonds has shown a downward trend of shock. Combined with the recent policy statement of the central government, it is expected that the broad currency will have a greater possibility of further development in the future, and the reduction of reserve requirements and interest rates can be expected.
(4) the epidemic and overseas geographical conflicts dragged down the economy in March, and there was great pressure on economic growth in the first quarter.
Since mid March, the epidemic in China has intensified significantly. Consumption: nationwide, residents' travel has been seriously affected by the epidemic: in March, the subway passenger flow in 10 major cities decreased by 6.9% to 43.3% compared with the same period last year. Under the condition that residents' travel is severely limited, the consumption data in March is expected to be seriously dragged down; In terms of real estate: this year, more than 60 cities have issued property market deregulation policies. With the continuous relaxation of the policy side, the land transaction area of large and medium-sized cities was - 47.8% year-on-year on March 30, the land supply area of 100 large and medium-sized cities was + 5.7% year-on-year, and the land transaction area of 100 large and medium-sized cities was - 41.0% year-on-year, indicating that at present, although the land supply of local governments is relatively active, the willingness of residents to buy houses and real estate developers to obtain land is still low, and the prosperity of the real estate industry is still not high; Infrastructure: in the first quarter of 2022, the scale of newly issued special bonds nationwide was 1298.1 billion yuan, accounting for 89% of the amount approved in advance of 1.46 trillion yuan and 36% of the annual issuance plan of 3.65 trillion yuan. The growth rate of special bonds issued at the beginning of this year is expected to be significantly higher than that at the beginning of last year, which is expected to be an important overlay of the growth rate of special bonds issued at the beginning of this year; In terms of industrial production, the official manufacturing PMI recorded 49.5% in March 2022, down from -0.7pcts last month, and was below the boom and bust line for the first time since November last year. There is a seasonal downturn in the manufacturing industry in March. The outbreak of the epidemic in China and the continuation of overseas conflicts between Russia and Ukraine are the main reasons for the simultaneous weakening of industrial production and demand. The added value of manufacturing industry accounts for more than 80% of the industrial added value. The reduction of manufacturing landscape and the weakening of production and demand are expected to drag down the growth rate of industrial added value in March to a certain extent. Export: in March, the official PMI new export order index ended the upward trend for two consecutive months, recording 47.2%, down from - 1.8pcts last month. In addition, according to the data of China Association for Hong Kong and Hong Kong, the foreign trade throughput of key monitored coastal ports decreased by 0.1% year-on-year in March. Overall, in the short term, under the influence of geographical conflicts and China's epidemic, China's exports are facing greater downward pressure.
(5) inflation: CPI is expected to rise year-on-year and PPI to fall year-on-year in March.
CPI: in March, the prices of eight categories of food under key monitoring rose and fell year-on-year. The prices of oil, vegetables, aquatic products, eggs and fruits rose year-on-year compared with March last year, and the prices of grain, pork and fresh milk fell year-on-year. In terms of non food items, the rise in oil prices is expected to promote the CPI non food items in March. CPI in March is expected to be about + 1.2% year-on-year. PPI: in March, the official PMI ex factory price index and the purchase price index of main raw materials were 56.7% and 66.1% respectively, up for two consecutive months compared with + 2.6pcts and + 6.1pcts last month. In March, in terms of main industrial raw materials, oil prices and coal prices rose, while steel prices were relatively stable. In terms of important indexes, CRB spot index and Nanhua industrial products index showed an upward trend. Overall, the PPI is expected to be around + 1% month on month (MOM) and + 8.0% year on year (YoY) in March, which is still lower than that in February.
(6) follow up judgment: the difficulty of stabilizing growth has increased significantly, and the broad currency is expected to continue to strengthen
The economic data in the first two months of this year performed well and generally exceeded market expectations. However, since March, the spread of the impact of international geopolitical conflicts and the significant intensification of the epidemic in China have posed all-round pressure on China's economic operation in the short term. The executive meeting of the State Council held on April 6 not only stressed the severe economic situation, but also further clarified the certainty of the steady growth policy. On the whole, China's economy is facing downward pressure on exports and consumption, real estate investment is still building a bottom, and manufacturing investment is facing great uncertainty under the impact of cost and weakening demand. Only infrastructure investment is highly deterministic, but it is also facing the situation of insufficient projects and epidemic disturbance. The triple pressure of demand contraction, supply shock and weakening expectation facing China's economy is still heavy. In this case, the stabilization of the economy needs further monetary easing. The decline in the yield of 10-year Treasury bonds since the end of March also reflects the increasing downward pressure on the economy and the enhancement of monetary easing expectations. In the short term, unless the economic data is better than expected or the clear policy signal makes the broad currency expectation fail, the broad currency expectation is still relatively broad, the credit expectation is dominant, and the favorable interest rate continues to decline.
