(1) global economic and financial trends: the global market is under pressure in the short term, the interest rate spread between China and the United States is upside down, and the pressure of China's capital outflow is increasing
This week, the Fed's policies and the situation in Ukraine continued to affect global markets. The US inflation index reached a 40 year high. High inflation did not change the expectation that the Federal Reserve would significantly tighten monetary policy, and the yield of 10-year US bonds continued to rise. In the short term, concerns about the upcoming tightening of the Federal Reserve's aggressive monetary policy and escalating geopolitical risks will continue to put pressure on the market. On April 11, the interest rate spread between China and the United States on 10-year Treasury bonds reversed for the first time since 2010. The fundamental reason for the upside down of interest rate spread between China and the United States lies in the dislocation of economic and policy cycles of the two countries in the process of epidemic recovery. In the short term, with the Fed's substantial interest rate increase and table contraction in May, the upside down range may further expand and increase the pressure of capital outflow and exchange rate depreciation. However, if US inflation eases in the second half of the year, the hawkish position of the Federal Reserve may weaken, and the impact of China US cycle mismatch on the Chinese market is expected to gradually ease.
(2) comments on important economic data in Europe and the United States: inflation data support the Federal Reserve to accelerate liquidity tightening
In March, the CPI of the United States increased by 8.5% year-on-year, the highest level in 40 years, and the core CPI was 6.5%, slightly lower than the expected value of 6.6%. PPI in the United States increased by 11.2% year-on-year in March, reaching an all-time high. The Federal Reserve began raising interest rates last month to prevent the damage caused by the rapid rise in prices to the US economy. This month's core inflation data may ease inflation expectations for the whole year. However, considering that the sanctions against Russia are still escalating, oil and commodity prices may remain high in the coming months. In addition, housing prices, which account for about one-third of the CPI index, remain high due to rising house prices and rents in the United States. Therefore, we believe that inflation data will not ease significantly in the short term, and economic data will continue to support the Federal Reserve to accelerate liquidity tightening.
(3) China's credit and liquidity: in March, the total amount of social finance was bright and the structure was poor. The central bank reduced the reserve requirement on a small scale, which was slightly lower than the market expectation
In April, the central bank's investment in the open market has turned stable again. Since the beginning of April, the net investment in the open market operation of the central bank has been - 710 billion yuan. In terms of money market interest rates, as of April 15, dr007 and shibor1w were 1.73% and 1.82% respectively, down about 52 BP and 38 BP compared with March 31, indicating that the current money market liquidity is relatively abundant. The relatively bright social finance data in March is a boost to market confidence. However, while the total amount stabilizes, it should also be noted that the data structure of social finance is still poor, the medium and long-term loans and short-term loans of residents are both lower, the total amount of enterprise loans is strong and the structure is weak, and the medium and long-term loans only increased by 14.8 billion yuan year-on-year, reflecting the core obstacles still existing in the continuous promotion of credit easing: first, under the real estate recession, the demand for residents' housing loans and medium and long-term loans of real estate enterprises is suppressed, The pulling effect on social finance is weak; Second, the spread of the epidemic and the continuation of overseas geographical conflicts affect the medium and long-term confidence of enterprises, and the demand for medium and long-term operational loans is insufficient.
The central bank decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25, 2022 and release long-term funds of about 530 billion yuan, slightly lower than the market expectation. On April 15, the central bank continued the equal volume parity of MLF and reverse repo, and the market expectation of interest rate reduction failed. The central bank has shown caution in easing policies. We believe that first, it is limited by the tightening of external liquidity, and second, the main resistance to promoting wide credit lies in the financing demand rather than the financing supply of banks.
(4) economic operation: the epidemic continues, real estate land transactions and residential sales have not improved, and import and export are weak
Since the middle and late March, the newly confirmed cases in China have remained at a high level. Under the sealing and control measures, the logistics and residents' gathering across the country have been greatly affected. Jilin Province has achieved zero social aspects at the provincial level, but the epidemic situation in Shanghai is still high. In March, the subway passenger volume in the 10 major cities decreased to varying degrees compared with the same period last year. Since April, the subway passenger volume in the 10 major cities is also lower than that in the same period last year. According to the tourism data, during the Tomb Sweeping Day holiday in 2022, the number of Chinese tourists nationwide decreased by - 26.2% year-on-year, and China's tourism revenue decreased by 30.9% year-on-year. It is expected that the epidemic situation in March and April will significantly affect China's economic operation, especially consumption. Despite the relaxation of house purchase policies in various regions, the data of residents' house purchase, land transaction and land transaction premium in March are still in the doldrums. After entering April, according to the disclosed data, the premium rate of residents' house purchase, real estate enterprises' land purchase and real estate enterprises' land purchase is still significantly weaker than that in the same period last year. The prosperity of the real estate industry is still not high, and it still takes some time for credit relief and other policies supporting real estate to be transmitted to the real estate industry. Denominated in US dollars, exports in March were + 14.7% year-on-year, down from + 16.3% from January to February, and imports were - 0.1% year-on-year, down more from + 15.5% from January to February. The decline in imports is mainly due to the impact of the epidemic on China's needs, and exports are mainly supported by prices. After removing the factors of increasing global inflation and rising commodity prices, China's exports actually decline more seriously. In the future, geopolitical conflicts and China's epidemic situation are still uncertain, the recovery of overseas supply chains is still continuing, the state of gradual weakening of foreign demand and weak domestic demand is expected to continue, and the pulling effect of net exports on China's economy will continue to weaken.
(5) inflation: the downward rhythm of PPI slows down, but the trend remains unchanged. Be alert to CPI rising higher than expected in the next three months
In March 2022, CPI was + 1.5% year-on-year and 0% month on month, while core CPI was + 1.1% year on year and - 0.1% month on month. Overall, the year-on-year increase in CPI in March 2022 was mainly affected by the continuation of geographical conflicts and the intensification of the epidemic in China. In the future, with the gradual weakening of the drag of pork prices on food items and the gradual rise of CPI tail warping factors from April to June, the development and changes of geographical conflicts and the prevention and control effect of China's epidemic will be the key factors to determine whether CPI will continue to exceed expectations year-on-year in the coming months. Overall, we believe that there is a certain upward risk of CPI continuously exceeding expectations in the second quarter, but it is unlikely to restrict monetary policy by breaking through 3% from April to June. In March 2022, PPI was + 8.3% year-on-year, up from -0.5pcts last month, up from + 1.1% month on month, up from + 0.6pcts last month. The continued rise of international commodity prices under the geopolitical conflict this month is the core reason why the decline of PPI is not as expected. Looking forward to the future, we believe that based on the tail raising factor, PPI will still gradually decline year-on-year, but under the development of international geographical conflicts and the fermentation of China's epidemic, the pace of decline of PPI may be slower than previously expected.
(6) follow up judgment: epidemic prevention and control is still the key, and the importance of fiscal policy and continued moderate relaxation of real estate regulation is more prominent
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. Although the total amount of social finance data in March is relatively bright, the structure is still poor, and the medium and long-term credit demand of residents and enterprises is weak. 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 is still heavy. At present, under the situation that the epidemic is still spreading and there is still great uncertainty in overseas geographical conflicts, it is significantly more difficult to achieve the annual economic growth target of 5.5%, which requires more active policies and more emphasis on the steady growth policy. This week, the central bank adopted a small-scale RRR reduction without interest rate reduction, which reflects that the central bank is still cautious about monetary policy easing. Although the market's expectation of further easing is difficult to disappear, the high probability will be weakened. The follow-up epidemic prevention and control is still the key. On this basis, the importance of fiscal policy and the continued moderate relaxation of real estate regulation is more prominent. It is expected that the follow-up market focus will be the gradual confirmation of the epidemic peak and the economic bottom.
