Key investment points
Macro exchange thinking: will the devaluation of the yen be the RMB next?
The orientation of monetary policy deviates, and the situation in China is very similar. In March this year, the depreciation rate of the yen suddenly accelerated. In more than a month, the depreciation rate of the yen against the US dollar exceeded 8%. It is true that the depreciation of the yen has something to do with the rise in energy prices caused by the conflict between Russia and Ukraine, but the opposite monetary policy orientation between the United States and Japan also contributes to this. While the Fed raised interest rates and prepared to shrink the table, the Bank of Japan continued to maintain monetary easing and increased its unlimited bond purchase at the end of March. Although China’s policy is not as radical as Japan’s, it is actually similar to it and is not ready for a comprehensive tightening, which can not help worrying about the RMB exchange rate.
Focusing on the strength of exports is the key to supporting the exchange rate. Since the outbreak, the trade situation, especially the strength of exports, has become more critical in determining the exchange rate level of various countries. For example, before the rapid depreciation of the yen, Japan’s exports fell significantly, only about 4% in the first two months of this year, compared with 18.5% in the whole year of last year. While the yen depreciated against the US dollar, the currencies of many resource countries showed strong appreciation against the US dollar, which may also be supported by exports. For example, the Brazilian real appreciated more than 9% against the US dollar in March, while Brazil’s export growth rate was as high as 36% in the previous two months, and Australia, which was close to 20% of the export growth rate, also appreciated more than 3% against the US dollar in March.
The export growth rate was exceeded by the United States, and the epidemic increased the operating pressure. The strength of the RMB exchange rate is also related to exports. In the process of the strengthening of the US dollar since the fourth quarter of last year, the RMB exchange rate has been abnormal. Compared with the US dollar, it has appreciated against the trend, which is mainly due to the strong demand for foreign exchange settlement brought by strong exports. In the first two months of this year, China’s export growth recorded 16.3%, but this growth rate has been overtaken by the United States. In the same period, the export growth rate of the United States exceeded 18%. In contrast, last year, China’s export growth rate was nearly 7 percentage points higher than that of the United States. Since March, the local epidemic in China has led to shutdown in many places, increasing the operating pressure of foreign trade enterprises. Therefore, the short-term RMB exchange rate may not depreciate as fast as the yen, but the process of export normalization may make the exchange rate easy to depreciate and difficult to rise.
Amplify the adjustment pressure and guard against external risks. For asset prices, the change of exchange rate may enlarge the pressure of overseas policy adjustment in China, so we need to be more vigilant against external risks. In March, overseas institutions reduced their holdings of bonds, and there was also an outflow of funds going north. At present, the interest rate difference between China and the United States is far from the “comfort zone”, and the Fed’s table contraction may continue to push up the interest rate of US bonds. If the depreciation of the RMB exchange rate is superimposed, it will cause greater pressure on capital outflow. At that time, I am afraid that only by raising the level of China’s interest rate can we deal with it, which will aggravate the adjustment risk for the bond market and the equity sector with high valuation.
One week scan:
Epidemic situation: the epidemic situation in China is still severe, and the transmission of Xe strain is accelerated. As of April 7th, Chinese mainland and Hong Kong, Macao and Taiwan had over 10 thousand cases and 24 thousand cases newly diagnosed in a week. At present, the current epidemic situation in Shanghai is still in a state of development, with more community transmission and spillover to many provinces and cities. The situation of prevention and control is very serious. Jilin City has achieved the goal of social clearance. In the last week, about 9.14 million new confirmed cases of covid-19 pneumonia were recorded in a week, down 17% from the previous week. The inflection point of new diagnosis in France is beginning to show, and the epidemic situation in South Korea continues to improve. There were about 24000 new deaths from covid-19 pneumonia worldwide, down 27.8% from last week. New deaths continued to rise in Germany and picked up in Thailand. Xe strain has accelerated its spread all over the world, and many countries have relaxed the ban on masks. The global vaccination rate of booster shots has increased slowly, and the WHO recommends Johnson & Johnson vaccine as booster shots.
Overseas: the Fed may shrink its watch or put it on the agenda, and the job market is still improving. The Federal Reserve announced the minutes of the FOMC meeting in March, which may be shortened or put on the agenda. Participants agreed that policies needed to be flexible in responding to new data and changing prospects, and the minutes were more hawkish than expected. Many Fed officials believe that the Fed may shrink its balance sheet rapidly as soon as may. European economic growth is expected to weaken, so it is necessary to further tighten monetary policy. Chris Williamson, chief business economist at S & P, said the euro zone’s economic growth prospects were deteriorating. Many ECB officials believe that the ECB will make all necessary adjustments as needed. Slovakia agreed to “breathe in the ruble”, while other EU countries are still on the sidelines. The United States will further increase sanctions against Russia and cancel normal trade relations between the United States and Russia. The number of initial jobless claims in the United States last week hit a new low since 1968. The annual rate of commercial retail sales of red book in the United States increased significantly in that week.
Prices: Shenzhen Agricultural Products Group Co.Ltd(000061) wholesale prices rose and international oil prices fell. This week, the Shenzhen Agricultural Products Group Co.Ltd(000061) wholesale price index of the Ministry of agriculture rose month on month, the price of pork rose, the average price of 28 key monitored vegetables fell, and the average price of 7 key monitored fruits rose. This week, the average price of Brent crude oil and WTI crude oil fell month on month, the average price of China Shipbuilding Industry Group Power Co.Ltd(600482) coal was stable, and the average price of rebar continued to rise.
Liquidity: the issuing interest rate of certificates of deposit decreased and the US dollar index rebounded. The interest rate of short-term funds differentiated this week. The weekly mean value of dr001 increased by 13.5bp month on month, and the weekly mean value of dr007 decreased by 12.1bp month on month; The weekly average of 3-month Shibor interest rate and 3-month certificate of deposit issuance interest rate decreased. The interest rate of bills declined, and the weekly average of 1-month, 6-month and 1-year rediscount interest rate of state-owned shares and silver bills fell. This week, the central bank conducted a total of 30 billion yuan of reverse repo in the open market, and a total of 610 billion yuan of reverse repo expired in the open market of the central bank this week; Next week, the central bank will have 40 billion yuan of reverse repo and 70 billion yuan of treasury cash deposit due on the open market, and 150 billion yuan of MLF will expire on Friday. The dollar index rebounded this week and the RMB remained stable.
Performance of major categories of assets: global stock markets generally fell and treasury bond yields fell. The global majority equity market fell this week, led by Nasdaq. The main indexes of the A-share market fell, and the gem index fell the most. The top three sectors in which Chinese stocks rose this week were architectural decoration, steel and building materials. This week, the weekly average yield of 10-year Treasury bonds decreased by 2.9bp, and the weekly average yield of 10-year CDB bonds decreased by 3.6bp.
Risk tip: policy changes, economic recovery is less than expected.
