East China Sea Macro Strategy Weekly Report: Expectations of Fed rate hikes have cooled, and risk assets have continued their rebound trend

Investment Points:

Domestic: At present, the number of new confirmed cases of the domestic epidemic has rebounded sharply again, and the impact of the short-term epidemic on the economy has increased. On the economic front, domestic economic expectations remain relatively optimistic. At the policy level, real estate support and rescue related policies (such as guaranteeing and handing over real estate and selectively saving housing enterprises) have gradually entered the landing window period; The real estate policies of some cities such as Nanjing and Suzhou have been further relaxed. However, the economic data in July is still weak, the growth rate of social financing stock fell by 0.1%, the growth rate of loan balances fell by 0.2%, but the growth rate of M2 increased by 0.6% year-on-year; showing that the current liquidity level is relatively abundant, but the non-government credit expansion is slow, and the pace of economic recovery is also slow; high-frequency real estate sales in 30 cities remain low and the performance of black, building materials, nonferrous metals, chemicals and other production and demand is weak. In addition, with the introduction of the US "Anti-Inflation" Act, the "Chip and Science Act" and the increase of technology export controls and other policies, the sino-US political, economic, scientific and technological, industrial and other aspects of the game has intensified again. Short-term stock markets have fallen back in the domestic financial data, but overseas stock markets continue to rebound and economic expectations are still relatively optimistic, A shares short-term support; Domestic demand commodities are supported by stable economic growth expectations and real estate bailout policies in the short term.

Overseas: The russian-Ukrainian conflict last week continued, which will continue to have an impact on the European economy and energy markets. On the economic front, the US Michigan Consumer Confidence Index rebounded more than expected and the US non-farm payrolls data remained strong, US consumption and employment remained strong, and recession expectations eased sharply. On inflation, the US CPI rose 8.5% year-on-year in July to 9.1% in the previous month, and the PPI in July fell 0.5% month-on-month, the first negative since April 2020. U.S. inflation has fallen back more than expected, and the Fed's subsequent pressure to raise interest rates from the inflation side is expected to be gradually eased, with a 43% chance of the Fed raising interest rates by 75 basis points in September as of August 13. In the short term, commodities such as US stocks and nonferrous metals continued their rebound trend due to the easing of US recession concerns and the cooling of interest rate hike expectations.

Conclusion: Maintain the three major A-share stock index futures (IH/IF/IC) in the short term to be cautious and long; Commodity indices remain cautiously bullish and Treasuries on a cautious wait-and-see view; Sort on the > of goods; The three major stock indices (IH/IF/IC) >; National debt. Overall, A-shares have fallen back in the short term under the domestic financial data, but overseas stock markets continue to rebound and economic expectations are still relatively optimistic, and A-shares are supported in the short term; Maintain A shares as cautious to go long. In terms of the bond market, the short-term bailout policy of the real estate market has landed, and the economic expectations are relatively optimistic, and the bond market has remained cautious in the short term. In terms of commodities, although the energy supply is tight, with the rapid slowdown of global economic growth, demand expectations weaken, and the high level of crude oil is weak and volatile, and in the medium term, we will continue to pay attention to the conclusion of the Iranian nuclear agreement and the situation between Russia and Ukraine; In terms of non-ferrous, the short-term support of easing overseas recession concerns, cooling expectations of fed interest rate hikes and expectations of production cuts in Europe, non-ferrous continued to rebound; In terms of black, the stable growth expectations and the impact of the policy of guaranteeing and delivering real estate have rebounded, the demand is expected to rebound, and the black short-term continuation rebound; In precious metals, short-term Fed tightening expectations cooled, the DOLLAR weakened sharply, and the short-term increase in precious metals was neutral or more.

Risk point: Fed currency tightens more than expected; geopolitical risks; global pandemic risk; Risk of an energy crisis in Europe; The risk of the Sino-US game has risen.

Operational recommendations

Strategy (strength and weakness ranking): commodity >; The three major stock indices (IH/IF/IC) >; national debt

Commodity strategy (strength and weakness ranking): colored >; Black >; Precious metal >; energy

1 Important news and events from the past week

1. U.S. CPI fell to 8.5% year-on-year in July, expected 7.7%, previous value 9.1%; 0% month-on-month, expected 0.2%, previous value 1.5%. Core CPI was flat at 5.9% yoY versus expected at 6.1%; 0.3% sequentially, expected 0.5% vs 0.7% previously. The U.S. Final Demand Producer Price Index (PPI) fell 0.5 percent from the previous month in July, the first month-on-month decline since April 2020, and climbed 1.0 percent in June. PPI rose 9.8% year-on-year, compared to 11.3% in June.

2. The preliminary value of the University of Michigan Consumer Confidence Index rose to 55.1 in August, and the preliminary value of the current index slipped to 55.5. Consumer inflation expectations for the coming year fell to 5.0 percent, below market expectations of 5.1 percent, but median long-term inflation expectations jumped to 3.0 percent, above market expectations of 2.8 percent.

3. On August 8, the New York Fed released a survey showing that U.S. consumers' inflation expectations for the coming year and three years fell sharply in July, suggesting that Fed officials are winning the battle to anchor price growth expectations in the fight to curb high inflation. The median expectation for inflation in one year fell by 0.6 percentage points to 6.2 percent, and the expectation for prices in three years fell by 0.4 percentage points to 3.2 percent, the lowest levels since February and April, respectively.

On April 8, Chicago Fed President Evans said that U.S. inflation was "unacceptably unacceptable." Evans expects the federal funds rate to be in the range of 3.75%-4% by the end of 2023. Evans said the Fed could move to a more hawkish stance if needed. Minneapolis Fed President Kashkali said the July CPI would not change his view and he hoped the Fed would raise the benchmark rate to 3.9 percent by the end of the year and to 4.4 percent by the end of 2023. Kashkali said the Fed is more likely to raise the federal funds rate to a certain level and then stop and observe until it is convinced that inflation has returned to 2 percent before considering a rate cut.

On August 9, U.S. President Joe Biden signed a landmark bill, the Chip and Science Act, which provides $52.7 billion in subsidies for semiconductor production and research in the United States and increases efforts to improve the Ability of the United States to respond to China's competition in the field of technology.

6. The Russian State Oil Pipeline Transport Company said that since August 4, the Ukrainian pipeline operator Ukrtransnafta has suspended the provision of transit services for Russian gas, the southern branch line (via Ukraine to Hungary 3. Pipelines for gas in Liberia, the Czech Republic and Slovakia have been suspended. However, the northern line of the "Friendship" pipeline through Belarus normally transports oil to Poland and Germany.

7. On August 9, the agreement reached by EU member states last month to reduce natural gas consumption came into force. According to the Economist Intelligence Unit, high gas prices and a gas supply crisis in Europe could continue into next year.

8. After the conclusion of the new round of Talks in Vienna on the Iranian nuclear agreement, the Iranian negotiating team will return to Tehran, and European officials revealed that Iran and the United States have not yet decided whether to accept the agreement, and a decision on the Iranian nuclear negotiations will be made within a few weeks.

9. For the third time since April, the Organization of the Petroleum Exporting Countries (OPEC) has lowered its forecast for global oil demand growth in 2022 due to the economic impact of Russia's invasion of Ukraine, high inflation and ongoing COVID-19 measures. OPEC's monthly report said oil demand is expected to increase by 3.1 million b/d in 2022, or 3.2 percent, 260,000 b/d less than previous forecasts. For 2023, OPEC expects demand growth to slow further to 2.7 million bpd, the same view as last month.

10. On August 10, the Taiwan Affairs Office of the State Council and the Information Office of the State Council issued a white paper entitled "The Taiwan Issue and the Cause of China's Reunification in the New Era".

11. On August 10, the Ministry of Foreign Affairs said that the Rokk government officially announced the policy of "three noes and one limit" to the outside world. The Chinese side attaches great importance to this position of the ROK government, and based on the understanding of the two sides, China and the ROK have properly handled the THAAD issue in stages.

12. The anti-corruption storm in China's chip industry continues to ferment. The State Supervision Commission of the Central Commission for Discipline Inspection announced that Xiang Zizhong, former deputy general manager of China Electronics Information Industry Group Co., Ltd., and Jiang Kaiqin, chairman of Wuhan Zhongyuan Electronics Group Co., Ltd., are currently undergoing disciplinary review and supervision and investigation because they are suspected of serious violations of discipline and law. Du Yang, Yang Zhengfan and Liu Yang, three executives of the chip fund, were investigated for suspected violations of the law.

13. On August 12, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) disclosed in the Federal Register a new interim final rule for export restrictions covering advanced semiconductors, turbo engines and other fields. The ban imposes new export controls on EDA/ECAD software necessary for integrated circuits with GAAFET (surround gate field effect transistor) structures, ultra-wide bandgap semiconductor materials represented by diamond and gallium oxide, and four technologies, including pressure gain combustion (PGC).

14. First Finance quoted the real estate intermediary as saying that the first set of local housing commercial loans in Suzhou continued to implement a 30% down payment ratio, and the second suite not only cancelled the previous "house and loan", but also greatly adjusted the down payment ratio, of which the down payment ratio of the mortgage has been settled from 50% to 30%, and the outstanding mortgage has been reduced from 80% to 60%. On August 12, it was reported on the Internet that Nanjing, Jiangsu Province, had lowered the down payment ratio of commercial personal housing loans on the same day, and the down payment ratio of resident families without housing and loans was reduced to a minimum of 30%, and the down payment ratio of households with houses and unsettled loans was reduced to a minimum of 60%.

15. China's July CPI increased by 2.7% year-on-year, expected 2.9%, compared with 2.5% in the previous month, mainly due to the sharp increase in the price of pork, fresh vegetables and other foods and seasonal factors; The CPI was 0.5% sequentially, in line with market expectations. In July, the PPI increased by 4.2% year-on-year, expected 4.8%, the previous value of 6.1%, PPI continued to decline year-on-year but slightly less than expected, from the rise to fall 1.3%.

16. At the end of July, M2 increased by 12% year-on-year, with growth rates of 0.6 and 3.7 percentage points higher than the end of the previous month and the same period of the previous year, respectively. RMB loans increased by 679 billion yuan in July, an increase of 404.2 billion yuan less than that of the same period last year. The increase in the scale of social financing in July was 756.1 billion yuan, a six-year low, and 319.1 billion yuan less than the same period last year; Among them, RMB loans issued to the real economy increased by 408.8 billion yuan, an increase of 430.3 billion yuan year-on-year. At the end of July, the stock of social financing was 334.9 trillion yuan, an increase of 10.7% year-on-year.

17. According to data released by the National Energy Administration, the electricity consumption of the whole society in July was 832.4 billion kWh, an increase of 6.3% year-on-year. Among them, the electricity consumption of the primary industry increased by 14.3% year-on-year, the electricity consumption of the secondary industry decreased by 0.1% year-on-year, and the electricity consumption of the tertiary industry increased by 11.5% year-on-year.

18. According to the Association, retail sales in the passenger car market reached 1.818 million units in July, up 20.4% year-on-year, the second highest growth rate in the past 10 years; retail sales in July fell by 6.5% month-on-month, ranking third in the history of the same period in the past 10 years. Wholesale sales of new energy passenger vehicles reached 564,000 units in July, up 123.7% year-on-year and down 1.1% month-on-month, while retail sales of new energy passenger vehicles in July reached 486,000 units, up 117.3% year-on-year and 8.5% month-on-month.

2 Reminders of important events of the week

1. August 8 (Monday): Industry data release (SMM announced "China's mainstream consumption of electrolytic aluminum inventory" and "SMM seven zinc ingot social inventory", oil mill weekly operating rate, soybean meal oil weekly inventory data), Japan's second quarter GDP year-on-year data, China's industrial added value in July year-on-year data, China's July fixed asset investment cumulative year-on-year data, China's July total retail sales of consumer goods year-on-year data, the United States August NAHB housing market index data

2. Tuesday, August 9: China's August Medium-Term Lending Facility (MLF): Interest Rate: 1 Year, Germany August ZEW Economic Sentiment Index Data, EU August ZEW Economic Sentiment Index Data, US July Housing Starts: Private Housing Data, US July Industrial Aggregate Output Index Month-on-Month Data

3. August 10 (Wednesday): Industry data release (looking for steel mesh to release black inventory and production, methanol port inventory data), the United Kingdom July CPI and core CPI data, the United States July core retail sales data, the United States July retail and food service sales data, the United States July total retail sales data, August Fed FOMC released the minutes of the monetary policy meeting

4. August 11 (Thursday): Industry data release (my weekly steel production and inventory, ore port inventory and port clearance, crude oil EIA inventory production data, US cotton export weekly report, SMM release of "China's mainstream consumption of electrolytic aluminum inventory", Longzhong update glass and soda ash weekly production inventory and other data), the EU July euro area CPI and core CPI year-on-year data, the UNITED States on the week of August 13 first-time jobless claims data, the United States July completed housing sales discount year data

5. August 12 (Fri): Japan July CPI and core CPI yo-yoy data, Germany July PPI yo-yoy data

Global asset price movements