(Photo courtesy of Hero)
There are three main issues that global investors are most concerned about:
1. The economy is off to a good start, will the domestic policy maintain the status quo or continue to increase?
2. When exactly will the Fed cut interest rates?
3. With Iran involved, what is the next step in the geopolitical situation in the Middle East?
Closely related to the three major focus issues, there will be a number of blockbuster data or major news released intensively this week.
Will domestic policy maintain the status quo or continue to increase the weight? //
The domestic economy is slowly recovering, and a number of previously released data are positive.
So, next, is the policy focus to continue the implementation of the stock policy, or to further introduce more incremental policies?
Note that last week, the first quarter meeting of the Monetary Policy Committee of the Central Bank emphasized that it is necessary to intensify the implementation of the monetary policy that has been introduced.
On April 7, the official website of the central bank announced that it would set up re-loans for scientific and technological innovation and technological transformation to encourage and guide financial institutions to increase financial support for small and medium-sized technology-based enterprises, technological transformation and equipment renewal projects in key areas. The reloan amount for scientific and technological innovation and technological transformation is 500 billion yuan, with an interest rate of 1.75%, a term of 1 year, and can be extended twice.
A number of macro monthly data to be released this week will provide a basis for the next action of the decision-makers.
Key figures include:
1. April 11 (Thursday) 9:30 National Bureau of Statistics released March CPI and PPI data;
2. On April 12 (Friday), the General Administration of Customs will release the foreign trade data for March;
3. This week may also release data on China's M2 money supply, the scale of social financing, and new RMB loans for March.
Let's start with the inflation data:
China's CPI rose 0.7% year-on-year in February, turning positive for the first time in half a year, up 1.0% month-on-month, an increase of 0.7 percentage points from the previous month. The PPI slowed at an accelerated pace in February, falling 2.7% year-on-year and 0.2% month-on-month.
Yi Xiang, chief macroeconomist of Huatai Securities, believes that as the boost of the Spring Festival effect fades, it is expected that the year-on-year growth rate of CPI will slow down in March, food prices will fall as a whole in March, and the prices of industrial products will mostly rise month-on-month, and the year-on-year decline in PPI may narrow.
Oriental Jincheng said that despite the downward trend in the price base in the same period last year, the year-on-year increase in CPI in March this year will still fall back and is expected to be around 0.2%. The prices of rebar and cement continued to adjust in March, which means that it is unlikely that the PPI will rise significantly month-on-month in March.
Let's look at the foreign trade data:
From January to February, exports increased by 7.1 percent year-on-year in US dollar terms, the scale of trade imports and exports hit a record high in RMB terms, imports increased by 3.5 percent year-on-year in US dollar terms, and the trade surplus was US$125.16 billion, an increase of 20.5 percent. Imports and exports to ASEAN, the United States, and South Korea have all increased, and the imports and exports of private enterprises have rebounded sharply.
At the Boao Forum for Asia Annual Conference 2024, Zhu Min, former deputy managing director of the International Monetary Fund, said that one of the reasons why China's exports are expected to rebound in 2024 is that China's "new three" exports have a greater impact on the world, which will help promote the green transformation of many countries.
In addition, China's March financial data, although the exact release time is not specified, is likely to be released this week.
China's social financing increased by 1.56 trillion yuan in February, and new RMB loans increased by 1.45 trillion yuan in February, of which medium and long-term loans to enterprises increased by 1.29 trillion yuan.
At the end of February, the balance of broad money (M2) was 299.56 trillion yuan, up 8.7% year-on-year. The balance of narrow money (M1) was 66.59 trillion yuan, a year-on-year increase of 1.2%. The M2-M1 scissors spread by 7.5 percent, compared to just 2.8 percent in the previous month.
Zhang Jingjing's team at China Merchants Securities believes that the lack of financing demand in February is still continuing, and due to the high base in the same period last year, the new credit in March is expected to decline significantly year-on-year.
On April 3, the official website of the central bank disclosed that the first quarter regular meeting of the central bank's monetary policy committee made it clear that it was necessary to increase the implementation of the monetary policy that had been introduced. Maintain reasonable and abundant liquidity, guide the reasonable growth and balanced distribution of credit, and keep the scale of social financing and money supply in line with the expected targets of economic growth and price levels. Promote a moderate recovery in prices and keep prices at a reasonable level. We will improve the formation and transmission mechanism of market-oriented interest rates, enrich the monetary policy toolbox, give full play to the guiding role of the central bank's policy interest rates, release the effectiveness of the reform of the loan market prime interest rate and the market-oriented adjustment mechanism of deposit interest rates, and promote the steady decline of corporate financing and household credit costs.
When exactly will the Fed cut interest rates? //
(Photo courtesy of Hero)
The start of the Fed's interest rate cut cycle has been repeatedly postponed. The US non-farm payrolls data for March released on April 5 far exceeded expectations, indicating a significant increase in uncertainty about the timing of the Fed's rate cut, and the March CPI will provide guidance for the Fed's decision-making.
At 20:30 Beijing time on Wednesday, April 10, the United States will announce the March CPI.
At 2:00 a.m. Beijing time on Thursday, April 11, the Federal Reserve will release the minutes of its March meeting.
Following the release of last week's super-strong non-farm payrolls report, the CME Fed Watch tool showed that the market's expectation of a first rate cut by the Fed in June has fallen to 50.8%, compared to 55.2% a week ago. If the April 10 CPI data outperforms expectations again, then this expectation could fall below 50%.
At present, many Wall Street institutions expect the year-on-year increase in CPI to rebound to 3.5% in March from 3.2% in the previous month, and the month-on-month growth rate will slow slightly from 0.4% to 0.3%, and the year-on-year growth rate of core CPI will slow down from 3.8% to 3.7%.
The U.S. added 303,000 nonfarm payrolls in March, the largest increase since May 2023 and well above Wall Street's consensus estimate of 214,000. In the month, the U.S. unemployment rate was 3.8%, down 0.1% month-on-month, reflecting that the U.S. job market is still hot.
Wages, one of the key indicators influencing the trajectory of inflation, rose 4.1% year-on-year and 0.3% month-on-month in March, and the labor force participation rate rose 0.2 percentage points to 62.7%.
After the release of the non-farm payrolls data, the swap market lowered its expectations for a Fed rate cut in 2024, US interest rate futures priced in two Fed rate cuts in 2024, reducing the probability of a June rate cut to 54.5%, and the swap market will fully price in the date of the Fed's first rate cut from July to September.
Fed Chairman Jerome Powell strengthened the prospect of interest rate cuts last week to ease market concerns, but a number of senior Fed officials intensively "spoke" every other day, and some officials even pointed out that there may not even be a rate cut this year.
Not just the Fed at the moment, but more and more economists on Wall Street are realizing that they may not see a Fed rate cut this year.
Will the situation in the Middle East deteriorate further? //
(Photo courtesy of Hero)
Geopolitical risks continue, including the Russia-Ukraine conflict and the Palestinian-Israeli conflict.
In this context, gold and oil prices have attracted much attention.
Gold prices are mainly affected by multiple factors such as the US dollar index, real interest rates (US Treasury or TIPS yields), interest rate cut expectations, and risk aversion.
Gold prices have recently launched another upward offensive after a period of consolidation. On April 6, international precious metal futures closed sharply higher, COMEX gold futures closed up 1.76% at $2349.1 / ounce, a record high, up 4.95% for the week, and COMEX silver futures closed up 1.3% at $27.6 / ounce, up 10.77% for the week. Recently, the domestic gold price AU9999 has also risen to 537.50 yuan/gram.
Xiong Yuan, chief economist of Guosheng Securities, believes that this round of gold rally began on March 1 when the U.S. manufacturing PMI for February was significantly lower than expected, triggering the Federal Reserve's interest rate cut expectations to rise and the dollar and U.S. Treasury interest rates to fall. However, after late March, the Fed's interest rate cut expectations continued to cool, and the dollar and U.S. Treasury interest rates continued to rebound, but gold continued to rise out of fundamentals.
He believes that there is a risk of a short-term correction in gold prices, and the overall number is still more during the year. Historically, gold has often experienced a round of correction in the short term after breaking new highs, and the current position situation reflects that long trading has become more crowded. In the medium and long term, the general direction of the U.S. dollar index is downward, the U.S. secondary inflation will depress real interest rates, and the geopolitical situation is still uncertain.
Look at oil prices.
The oil market continues to be affected by a variety of factors due to attacks on Russian refineries and OPEC+ policy adjustments. International crude oil prices remain high as the situation in the Middle East heats up, coupled with the fact that U.S. energy companies have cut oil and gas rigs for three consecutive weeks, and the market's expectations of tighter supply continue to strengthen.
On April 6, international oil prices rose slightly, with the U.S. oil May contract up 0.16% to $86.73 per barrel, up 4.28% for the week, and the Brent oil contract for June up 0.23% to $90.86 per barrel, up 4.44% for the week.
Analysts say oil prices are expected to continue to strengthen as Iran intervenes in the Middle East conflict.
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