Important note: The Administrative Measures for the Suitability of Securities and Futures Investors came into effect on July 1, 2017, and the views and information published through this WeChat subscription account are only for the reference of professional investors of Haitong Securities, and the complete investment views should be subject to the full report issued by Haitong Securities Research Institute. If you are not a professional investor among Haitong Securities clients, in order to control investment risks, please unsubscribe, receive or use any information in this subscription account. We apologize for the difficulty in setting access permissions for this subscription account, and for any inconvenience caused. Our company will not regard relevant personnel as customers because of the following, receipt or reading of the content of this subscription account, the market is risky, and investment needs to be cautious.
Haitong Macro Liang Zhonghua team
Authors of this report:
李俊 S0850521090002
王宇晴 S0850122070054
梁中华 S0850520120001
·Summary ·
Economy: In the U.S., consumption remains relatively stable. U.S. retail and food services sales rose more than expected year-on-year in March. The real estate market is under pressure. U.S. existing home sales fell in March, and the year-on-year growth rate of new private homes that have started fell back. Production has picked up. In March, the year-on-year growth rate of total industrial output in the United States rebounded significantly, and the utilization rate of industrial capacity increased.
The market expects the Fed to cut interest rates for the first time from July to September the previous week, and the expected number of interest rate cuts this year has also been lowered from 2 to 1, with a rate cut of 25BP. The yield on the 10-year Treasury note recovered to 4.62%, mainly due to higher real interest rates.
In Europe, Eurozone industrial production remained weak in February.
Policy: Fed officials still stressed that they are not in a hurry to cut interest rates, with some saying they do not rule out the possibility of raising interest rates, many ECB officials support a rate cut in June, the Bank of Japan continues to maintain loose monetary policy, and the Bank of Korea may adopt tools to respond to exchange rate movements. Risk warning: overseas monetary policy adjustment exceeded expectations
1
US: Retail consumption remains steady
The growth rate of retail sales has increased significantly. U.S. retail and food services sales grew 4.0% year-on-year in March, up 1.9 percentage points from February. Among them, the year-on-year growth rate of retail sales rebounded by 2.2 percentage points to 3.6%, and the month-on-month growth rate fell by 0.2 percentage points to 0.7%, but it was still higher than the market expectation of 0.4%.
Specifically, the month-on-month growth rate of non-store retail sales reached 2.7%, which was the most obvious pull on the month-on-month growth rate (0.5 percentage points), and the contribution of gas stations and daily necessities shopping malls to the month-on-month growth rate was also relatively significant. In contrast, motor vehicles and parts, apparel and clothing accessories stores significantly dragged down the month-on-month growth rate of retail sales.
Industrial output value turned negative and positive year-on-year. The year-on-year growth rate of U.S. industrial output in March rebounded by 1.2 percentage points from February to 0.8%, the highest since February 2023. The seasonally adjusted growth rate rebounded by 1.3 percentage points to 1.2%, ending the previous three consecutive months of negative growth.
Capacity utilization continues to pick up. In March, the U.S. industrial capacity utilization rate rebounded by 0.2 percentage points from February to 78.4%, and the manufacturing capacity utilization rate rebounded by 0.3 percentage points to 77.4%, both of which have rebounded for two consecutive months and slightly exceeded the pre-pandemic level (77.8% and 77.1% respectively in December 2019).
U.S. existing home sales have fallen. U.S. existing home sales in March were 4.19 million units (market expectation of 4.2 million units), down 190,000 units from February. In addition, the year-on-year growth rate of existing home sales fell by 0.4% from February to -3.7%, and the annualized growth rate fell by 13.8 percentage points month-on-month to -4.3%.
The year-on-year growth rate of new private residential buildings has declined significantly. In March, the number of new private homes started in the United States fell sharply by 12 percentage points year-on-year from February to -4.3%, falling back into negative territory again after four months. Housing market demand may remain subdued under the influence of the Fed's interest rate cut expectations and mortgage rates remaining high.
Expectations of interest rate cuts continue to fall. As of April 19, the market expects the Fed to cut interest rates for the first time from July to September the previous week, and the expected number of interest rate cuts this year has also been lowered from 2 to 1, with a rate cut of 25BP for the whole year. Overall, market expectations for interest rate cuts have continued to cool in the near future as U.S. inflation has been hampered and the U.S. economy remains stable.
Treasury yields recovered to 4.62%. As of April 19, the nominal yield on US 10-year Treasury bonds was 4.62%, a further 12BP rebound from the previous week, or due to frequent hawkish speeches by Fed officials, market interest rate cut expectations continued to cool. Among them, the real yield on the 10-year Treasury bond was 2.21%, up 10BP from the previous week, and the 10-year inflation expectation increased by 2BP from the previous week to 2.41%.
2
Europe: Industrial production remains weak
Industrial production remains weak. In February, the industrial production index of the 19 countries in the euro area grew by -6.4% year-on-year, up 0.2 percentage points from January, lower than the market expectation of -5.5%, and still in the negative range. Overall, the performance of industrial production in the eurozone remains weak.
3
Policy: The Fed may still cut interest rates early, and the European Central Bank may cut rates in June
Fed officials still stressed that there is no rush to cut interest rates. Fed Chair Jerome Powell said that the U.S. economy has been strong over the past year, and recent data suggests that no further progress has been made in the fight against high inflation, and that the 12-month core PCE is expected to hover in a narrow range around 2.8%, and that it may be appropriate for higher interest rate policy to work for longer.
Other officials also believe that it is still too early for the Fed to cut interest rates. Fed Vice Chair Jefferson said it is necessary for interest rates to remain high if inflationary pressures persist. Cleveland Fed President Mester said that the Fed is not rushing to cut interest rates, and that a strong economy and a dynamic labor market give the Fed room to remain patient on policy, and more data is needed to decide whether to cut rates. Fed Governor Bowman said inflation progress may have stalled. Richmond Fed President Barkin believes that it would be wise for the Fed not to rush to decide on a rate cut, and the US CPI data does not support a soft landing. San Francisco Fed President Daly also believes that there is no urgency to cut interest rates at the moment, and the worst thing to do is to rush into action.
Some Fed officials said they did not rule out the possibility of raising interest rates. Atlanta Fed President Bostic still expects the Fed to cut interest rates once this year, but also said he is open to raising interest rates if inflation continues to rise. New York Fed President Williams also said that he does not feel the urgency to cut interest rates at the moment, and if there is enough data to support it, it may also raise interest rates.
The European Central Bank may cut interest rates in June. ECB President Christine Lagarde said that if there is no major shock, the ECB will cut interest rates soon, and the current slowdown in inflation in the eurozone is in line with expectations. On the other hand, due to geopolitical factors, the ECB will also pay close attention to changes in oil prices. In addition, Lagarde said that the exchange rate must be carefully watched and the impact of exchange rate movements on inflation must be taken into account.
A number of officials also supported the ECB's interest rate cut in June. ECB Governing Council member Villeroy indicated that if there is no serious shock, the ECB will cut interest rates in June, and the size of the rate cut will depend on the specific data performance. ECB Governing Council member Makhlouf noted that if the inflation trend continues, the ECB should be able to cut interest rates at its next meeting. ECB official Rehn also believes that the eurozone is approaching the target inflation level of 2%, and the conditions are ripe for the ECB to cut interest rates in June. ECB Governing Council member and Bundesbank President Nagel also said that the probability of a rate cut in June is growing.
In terms of the number of interest rate cuts, ECB Governing Council member Simkus said that there is a more than 50% chance of more than three rate cuts in 2024, and after the rate cut in June, it may cut interest rates again in July, and the ECB will cut interest rates this year and next.
However, some officials are still cautious about cutting interest rates. ECB Governing Council member Holzmann believes that the geopolitical crisis and the rise in oil prices will have a major impact, and it is necessary to wait until June to decide whether to cut interest rates, and it is too early to discuss the number of rate cuts by the ECB this year. If high inflation in the United States forces the Fed not to cut interest rates this year, it will be difficult for the ECB to cut rates 3-4 times.
The Bank of Japan maintains an accommodative monetary policy. Bank of Japan councillor Asahi Noguchi said that the Bank of Japan's continued easing policy is essential to achieve a balanced labor market, and will gradually raise interest rates and adjust bond purchases. At present, there is still some way to go to achieve a virtuous circle, and the Bank of Japan will pay close attention to the wage price cycle, and the key to the problem is that small companies pass on rising costs by raising prices. In terms of balance sheet reduction, Noguchi believes that it makes little sense to simply reduce the balance sheet.
The Bank of Korea may adopt tools to deal with exchange rate fluctuations. Bank of Korea Governor Rhee Chang-yong said that the recent weakness of the won has been slightly overdone, and the Bank of Korea will take action to deal with exchange rate fluctuations. Risk warning: overseas monetary policy adjustment exceeded expectations
---------------- Saudi Arabia: What are the investment opportunities ?—— Emerging Economies Research Series No. 9 (Haitong Macro, Li Jun, Wang Yuqing, Liang Zhonghua)
Rising to the Challenge: Haitong's Macroeconomic and Policy Outlook in 2024 (Haitong Macro Research Team)
Legal Notices
The content contained in this subscription account is only for the reference of professional investors of Haitong Securities, and is only for the exchange of research views in the context of new media. This subscription account is not a publishing platform for Haitong research reports, and customers still need to refer to the complete report officially released by Haitong Research Institute through the research report publishing platform. The market is risky, and investors need to be cautious. In any case, the information or opinions contained in this subscription account do not constitute investment advice to any person, and Haitong Securities shall not be liable for any consequences or losses arising from any direct or indirect use of the information and content published in this subscription account or investment based on it. The information, opinions and projections contained in this subscription account may no longer be accurate or invalid due to various factors after the date of publication, and Haitong Securities undertakes no obligation to update inaccurate or outdated information, opinions and projections without prior notice. The copyright of this subscription account belongs to Haitong Securities Research Institute, and any subscriber who pre-quotes or reprints the content contained in this subscription account must contact Haitong Securities Research Institute for permission, and must indicate the source as Haitong Securities Research Institute, and shall not quote or delete the content contrary to the original intention. Haitong Securities Research Institute Macro Industry reserves all legal rights to this subscription account (WeChat ID: Haitong Macro Research). Other subscription accounts registered by other institutions or individuals on the WeChat platform in the name of the macro industry of Haitong Securities Research Institute, or containing "macro team or group of Haitong Securities Research Institute" and related information are not official subscription accounts of Haitong Securities Research Institute macro industry.