The global stock market is boiling, and Chinese assets are about to take off

Global stock markets are boiling.

Overnight, U.S. stocks jumped 2.37%, rebounding 11.5% from the end of October. The S&P 500 jumped 1.9%, rebounding 9.2% from the end of October. European stocks also soared, with Germany's DAX up 1.7% and France's CAC 40 up 1.4%.

Today, Asia-Pacific stock markets are also hot. The Nikkei 225 surged 2.5% and was just one step away from a new all-time high. South Korea's Kospi also jumped 2%. In the Hong Kong stock market, the Hang Seng Index and the Hang Seng Tech Index both soared 4%.

The A-share market has seen a slight decline, with the Shanghai Composite Index rising 0.55%, but it has broken out of the sideways range of the past two weeks. The Shenzhen Component Index and the ChiNext Index both rose more than 0.5%. Northbound funds once flowed into more than 5 billion yuan, and 3.6 billion yuan at the close.

In the bond market, the yield on the 10-year Treasury bond fell 18.5BP to 4.453%, hitting a new low since September 22, and down more than 50BP from 5.02%, which hit a 16-year high on October 23. In addition, the yield on the 2-year Treasury note also fell by nearly 20bp to 4.838%. In the currency market, the dollar index plunged 1.5% to around 104, compared with a high of 107.3 in early October.

The stock market, bond market, and foreign exchange market have changed significantly, and the fuse was the U.S. inflation data for October released at 9:30 p.m. yesterday. This data is very important and may strengthen the movement of the broad asset class for some time.

01

According to the U.S. Department of Labor, the CPI rose 3.2% year-on-year in October, lower than the market expectation of 3.3%. From May to September this year, the CPI was 4.1%, 3%, 3.2%, 3.7%, and 3.7% respectively. Inflation has rebounded for 4 consecutive months before, and this time it turned around again to maintain the downward trend, which has a big impact on the market.

In terms of separation, energy items fell by 4.5% year-on-year, an increase of 4% from September. Among them, gasoline prices fell sharply by 5% month-on-month, and the month-on-month growth rate decreased by 7.1% compared with September.

The improvement in energy inflation is due to a sharp drop in international oil prices, with Brent crude oil falling from $96 at the end of September to $83 at the beginning of November. The core factor stems from a number of core data in the United States, which indicates that the U.S. economy is beginning to cool, so that the market is more pessimistic and expects sluggish oil demand, although there are also supply-side disruptions such as the Palestinian-Israeli conflict and Saudi Arabia and Russia's production cuts.

In terms of food, it rose by 3.3% year-on-year in October and decreased by 0.4% from September. This is the 14th consecutive month of decline, but the month-on-month growth rate has rebounded from 0.1% to 0.3%.

Core CPI rose 4% year-on-year in October, lower than market expectations and the previous value of 4.1%, hitting a new low since October 2021. It rose 0.2% month-on-month, with an expected increase of 0.3% and a previous increase of 0.3%.

Specifically, core goods inflation was -0.1% in October, marking the fifth consecutive month of negative month-on-month growth. In the future, it is expected that the month-on-month decline may continue to maintain a slight downward trend, and new cars, used cars, furniture and household products will continue to be weak. One of the important factors is the imminent depletion of excess savings, coupled with the slowdown in wage growth, which will put some downward pressure on consumption.

In addition, core services rose 0.3% month-on-month and decreased 0.3% from September. Among them, housing items increased by 6.7% year-on-year and 0.3% month-on-month, while the latter fell 0.3% from September. It can be seen that the downward rate of rent inflation has accelerated to a certain extent.

The slowdown in core services inflation month-on-month has led to a decline in core inflation growth, which has also eased market concerns about sticky inflation.

All in all, the weaker-than-expected inflation data in October will greatly strengthen market expectations for the Fed to end its rate hikes. This is also the main factor for the sharp rise in global equity markets and the sharp decline in US Treasury dollars. And this logical change is not short-term, and will affect the performance of global risk assets in the medium term.

However, it is also worth noting that there is still a possibility of a rebound in inflation due to the base effect in November and December. According to estimates, if the month-on-month growth rate of inflation in November and December is the same as that in October, then the overall CPI will be 3.3% and 3.7% year-on-year respectively, and the year-on-year growth rate of core CPI will rebound to 4.1% and 4.2%. Of course, this needs to be taken step by step, and if the U.S. economy declines significantly in the next two months, inflation is likely to maintain the trend of continuous decline in October.

02

Today, the National Bureau of Statistics released economic data for October, and the overall performance was decent.

On the supply side, industrial production increased by 4.6% year-on-year in October and 0.1% month-on-month from September, slightly exceeding market expectations of 4.3%. On the one hand, due to the high base of industrial added value in September last year and the decline in October, the base in October this year was low compared with the same period in the past. On the other hand, the production index in the manufacturing PMI disclosed in the early stage fell greatly, resulting in market expectations themselves are not high.

On the demand side, let's look at social zero consumption first. The year-on-year growth rate in October was 7.6%, exceeding market expectations of 7% and the previous value of 5.5%. However, the two-year compound average growth rate is only 3.5%, which has been a marginal decline for two consecutive months. The compound average growth rate of the previous two years from January to September was 5.3%, 5.3%, 3.3%, 2.6%, 2.5%, 3.1%, 2.6%, 5% and 4% respectively.

In terms of specific categories, the two-year compound average growth rate of sports and entertainment goods, tobacco and alcohol has picked up. In particular, the sharp year-on-year surge in sports and entertainment products is also an important factor for the company to slightly exceed expectations. On the one hand, holiday tourism is better repaired, and related demand has been released. On the other hand, the Double 11 promotion window was front-loaded, and part of the sales amortization was in October. However, the performance of real estate chains such as building decoration materials, home appliances and audio-visual equipment, and furniture is very weak.

On the whole, although the social zero consumption slightly exceeded expectations, the performance was still relatively weak. It is still an old problem, and the balance sheet of residents has been greatly damaged due to the epidemic, and it has not been completely shaken off. In addition, the poor performance of the stock market and the property market has limited the willingness to spend on consumption to a certain extent.

Looking at fixed investment, the year-on-year growth rate in the first 10 months was only 2.9%, down 0.2% from the previous September. This is the eighth consecutive month of decline.

By category, manufacturing investment increased by 6.2% year-on-year in October, lower than the previous value of 7.9%. In fact, since the beginning of this year, the year-on-year growth rate of private investment has continued to improve compared with the overall investment, but the improvement of private investment in the manufacturing industry is relatively poor, which also proves that the foundation for the recovery of the manufacturing industry is not solid.

The year-on-year growth rate of broad infrastructure in October was 5.6%, lower than the previous value of 6.8%. Among them, the growth rate of investment in transportation and warehousing, water conservancy, environment and public facilities has cooled. Factors contributing to the slowdown in infrastructure include the fact that the issuance of new special bonds is not as fast as last year, and there is no policy development financial instrument support last year. Of course, the most essential reason is that fiscal revenues have not improved, and local governments are still in the process of turning their debts into debts.

However, infrastructure construction will be strong next year, because trillions of national bonds are already on the way.

Looking at the real estate market, the growth rate of investment continued to fall to 9.3% in the first 10 months, and the year-on-year decline continued to expand slightly to 11.3% in October. In addition, the area of new construction started fell by 21% year-on-year, compared with -23% and -15% respectively from August to September. The area of completions increased by 13% year-on-year, compared with 10% and 23.9% respectively in August and September.

On the whole, the pressure on the real estate market in October was still relatively large, dragging down fixed investment and the overall economic performance. Although a series of policies have been introduced in the early stage, such as recognising the house without recognising the loan, reducing the down payment ratio, and lifting the purchase and sale restrictions, the actual effect is not good.

In terms of real estate policy, it is expected to continue to increase. Yesterday, there were media rumors that the central bank considered providing medium and long-term low-cost funds through policy banks through policy tools such as collateral supplementary loans (PSL) in stages to support the construction of the "three major projects", including affordable housing, urban village renovation and dual-use infrastructure, with a total support of at least 1 trillion yuan.

The PSL tool was created by the central bank in 2014 and used in 2015 and 2022. In 2015, through this tool, the shed was changed to a starting point, which quickly promoted the destocking of real estate and revitalized the sluggish real estate market at that time. In 2022, due to the raging epidemic, PSL will replenish the ammunition for infrastructure and support the entire economic growth.

At present, if the "three major projects" are taken as the starting point and the PSL is restarted, then it can be regarded as a fiscal policy to support fixed asset investment. In addition, the trillion yuan special treasury bond measures just announced in the early stage will become a favorable weapon to support next year's economic growth.

This is also an important trigger for the recent surge in the black series of the commodity market. Among them, the main iron ore futures contract has approached the $1,000 mark.

Of course, the stock market has also reversed its previous pessimistic expectations of economic fundamentals.

03

On November 10 last year, the US released lower-than-expected inflation data. On the same day, a meeting of the Political Bureau of the CPC Central Committee was held to adjust the epidemic prevention and control policy. Two major factors, both internal and external, drove China's stock market to rebound for more than two months.

This time, there are similarities. External factors, the U.S. inflation data in October was lower than expected, coupled with the previous non-farm payrolls data and the tone of the Federal Reserve's interest rate meeting, all pointed to the Fed ending interest rate hikes. As for internal factors, the launch of trillions of special treasury bonds, as well as the possible trillion PSL, so that the market has strong expectations for the continuous improvement of economic fundamentals and Shanghai and Shenzhen.

Last year's market bottom appeared on October 31, and this year's market bottom has also appeared, on October 23. Last year, there was a solid New Year's Eve market. This year, both internal and external drivers are there, and they will not be absent.

Of course, the sooner you believe this story, the more cost-effective the investment will be. Further down, there are more uncertainties, such as whether the US economy will fall into a more severe recession, and whether keeping interest rates so high for a long time will lead to non-linear risks. Cherish the two months leading up to the end of the year and don't miss out. (End of full text)