Key investment points
Core view: the rate cut is less than expected, and it is difficult to implement the interest rate cut in the short term. In the short term, the central bank has clearly released the signal that it is more difficult to adjust monetary policy under inflation and the Fed's interest rate increase, so it may be difficult to reduce interest rates in the short term. However, we believe that the window of interest rate reduction in the medium term has not been closed, and the key lies in the epidemic and the real estate market. If the epidemic leads to a rise in the unemployment rate again and the inflation and exchange rate can be maintained within an affordable range, there is still a certain probability of interest rate reduction; If commercial housing sales pick up under the deregulation of many cities, it will restrict the interest rate cut. At present, this restriction is not large. In terms of late April, the total amount of financial data exceeded expectations. Superimposed on the probability of the Politburo meeting in April, there will be the redistribution of stable growth policies, which increases the probability of rapid economic recovery after the epidemic and suppresses market sentiment. Focus on the unemployment rate data for March released next week.
Market review: multiple factors disturbed the market and the yield fluctuated slightly. Last week, the overall capital side was loose, driving the short end lower. The yields of 10Y treasury bonds and CDB bonds were +0.49bp, -0.49bp to 2.7578% and 2.9891% respectively, and the yields of 1y treasury bonds and CDB bonds were -7.51bp, -5.78bp to 1.9918% and 2.1604% respectively. Specifically, on Monday, the financial data exceeded expectations, but the structure was poor, inflation exceeded expectations, and the interest rate spread of China US 10Y treasury bonds was upside down for the first time since 2010; On Tuesday, the Treasury bond yield continued to rise except 1y, which declined slightly; On Wednesday, the news level was relatively calm, but the expectation of MLF interest rate cut disturbed the market and the yield of each term fell somewhat; On Thursday, affected by the further raising and lowering of the reserve requirement by the national standing committee, the short-term yield decreased significantly, but the 10Y yield still increased slightly; On Friday, MLF failed to cut interest rates and fulfilled the RRR reduction, but the range was lower than expected, and the yield decreased slightly compared with the previous day.
Weekly topic: will interest rates be cut after the RRR reduction?
Less than the market expectation of 25bp. The central bank may have the following considerations. First, as the central bank said, the current banking system has abundant funds. At present, the inter-bank certificate of deposit interest rate has reached a low level since 2021, and the short-term funds are also relatively loose. The main purpose of this RRR reduction is to optimize the capital structure of financial institutions and reduce the comprehensive financing cost of financial institutions. Taking into account the recent high-level continued to consolidate the "policy bottom", the signal of this RRR reduction is of strong significance. Second, inflation, especially CPI, will rise in the future, which will restrict the range of RRR reduction. The central bank proposed to "pay close attention to the changes of price trend and maintain the overall stability of prices." The rebound of CPI in March has been obviously transmitted by energy prices and PPI. There is a certain probability that it will rush to 3% in individual months in the third and fourth quarters. Third, affected by the adjustment of monetary policy in major developed economies, monetary policy needs to "give consideration to both inside and outside". This week, the interest rate spread between China and the United States has been upside down, and the exchange rate of the US dollar against the RMB has rebounded again. Under the further tightening of monetary policy by the Federal Reserve, we need to give sufficient consideration to the future devaluation of the RMB. Will there be interest rate cuts after the RRR reduction? We believe that the window of interest rate reduction has not been closed, but the probability is decreasing. Looking back since 2015, most cases will be accompanied by different forms of interest rate cuts after the RRR reduction, but there are also cases of no interest rate cuts or even RRR reduction + interest rate increase (such as April 2018), which is mainly related to the macro-control objectives at that time. The current policy goal is undoubtedly to enable more market players, especially small and medium-sized enterprises, to get credit support at a reasonable financing interest rate, so as to achieve the purpose of stabilizing employment and ensuring people's livelihood. However, the current problem is that there is no lack of liquidity in the total market. The overall performance of financial data in the first quarter exceeded expectations, but the growth rate of resident loans and medium and long-term loans of enterprises is not good. At present, the biggest constraint on the economy is the obstruction of the epidemic to the economic cycle, which makes it difficult for the liquidity released by the broad currency to further circulate to small, medium-sized and micro enterprises. Since November 2021, the unemployment rate has risen rapidly to the current 5.5%. Therefore, from the perspective of stabilizing employment and ensuring people's livelihood, the window of interest rate reduction has not been closed, but a certain opportunity is needed. The possibility of reducing interest rates in the future depends on the sustainability of the epidemic in China; Second, whether the real estate sales can show signs of recovery under the deregulation of many cities; Third, see whether the unemployment rate data in March continues to fall; Fourth, it depends on whether inflation and exchange rate can be maintained in an affordable range.
Risk warning: the epidemic development exceeded expectations; Substantial adjustment of real estate regulation policies; Inflation and exchange rate restrict monetary policy for longer than expected; Economic data exceeded expectations.
