Hong Kong financial market
Macroeconomics: The latest initial jobless claims in the United States rose to an eight-month high, Federal Reserve officials are still cautious about cutting interest rates overall, and the market is focused on next week's CPI data. The Riksbank cut interest rates by 25bp for the first time this time and expects two more rate cuts in the second half of the year if the inflation outlook remains unchanged. China's imports and exports both turned positive year-on-year in April, and the CPI and Caixin PMI data showed that the mainland's economic fundamentals continued to improve. During the May Day holiday, tourism consumption in the Mainland and Hong Kong performed well. Indonesia's better-than-expected growth in the first quarter of this year supported its resumption of interest rate hikes in April.
Financial markets: This week, the secondary market of Hong Kong stocks continued to rise on the upside of the mainland's fundamentals and favorable policies, and market news pointed out that regulators are considering reducing the dividend and dividend tax on Hong Kong Stock Connect investments by mainland individual investors. During the week, the US dollar liquidity in the Chinese offshore market was generally loose, and the short-term interest rates of the Hong Kong dollar and offshore RMB also fell. This week, U.S. Treasury yields basically maintained the downward trading trend after the non-farm payrolls, and the interest rate differential between China and the United States widened slightly. Under the narrow range of the US dollar, the Hong Kong exchange rate was supported by the demand for funds in the stock market, and the offshore RMB exchange rate weakened slightly.
Market outlook: In the second quarter, China's bonds are headwinds, and fundamentals, government bond supply and supervision are the more obvious factors that disturb the bond market and capital, and manual interest supplements and deposit interest rate reductions are hidden factors. From the perspective of institutional behavior, the recent US bond bulls have the upper hand, and the US CPI may be stronger than expected next week, or stimulate the short-term rebound of yields, and maintain the idea of going long on the high. Under the premise that the central parity does not adjust significantly, the USD/RMB is expected to continue to maintain a narrow range of low volatility. The recent return of gold valuation to a reasonable superposition of bullish sentiment and the low recovery of bullish sentiment have provided a margin of safety for gold prices to increase their holdings at the right time; Crude oil prices fell as expected, and the upward recovery needs to be driven by demand.
1. Macro situation 1.1 United States The latest initial jobless claims in the United States rose to an eight-month high. The number of initial jobless claims in the United States for the week ended May 4 was 231,000, the highest since August 26, 2023, with an expectation of 215,000 and a previous reading of 208,000. The higher-than-expected initial jobless claims further supported market expectations that the Fed will still cut interest rates this year. According to the data, the average number of initial jobless claims in the United States increased by 4,750 in the past four weeks to 215,000, and the number of continuous claims for unemployment assistance increased by 17,000 to 1.785 million, in line with market expectations. Fed officials remained cautious about cutting interest rates during the week. Richmond Fed President Barkin said this week that the current high interest rates will further slow economic growth and help bring inflation down to the Fed's 2% target. New York Fed President Williams said during the week that "the Fed will lower its interest rate target at some uncertain moment", noting that the U.S. economy is generally returning to balance amid a slowdown in economic growth. The president of the Minneapolis Fed expects no more than two rate cuts in 2024, and the threshold for another rate hike is quite high. The Boston Fed president said that he has not yet seen signs of further decline in inflation and needs to keep interest rates steady. The president of the San Francisco Fed said that there is a lot of uncertainty about inflation over the next three months, and if the job market deteriorates, interest rate cuts may be considered. The president of the Atlanta Fed is expected to cut interest rates once this year. Governor Bowman believes that there is no need to cut interest rates this year. The president of the Dallas Fed believes that it is too early to consider a rate cut. 1.2 Europe Eurozone PPI fell for 11 consecutive months in March. Eurozone PPI fell 7.8% year-on-year in March, a larger-than-expected decline of 7.7% and slower than the year-on-year decline of 8.3% in February; Eurozone PPI fell 0.4% month-on-month in March, in line with expectations and the previous reading of a 1% decline. In terms of composition, energy prices were the main reason for the continued decline in PPI, which excluding energy prices, fell by 1.3% year-on-year and increased by 0.2% month-on-month in March, respectively. The previously announced harmonized CPI of the euro area in April was 2.4% year-on-year, unchanged from the expected and previous values, the core harmonized CPI was 2.7% year-on-year (expected 2.6%, the previous value was 2.9%), and the cooling of services items was more obvious, with a year-on-year increase of 3.7% (the previous value of 4.0%). The Riksbank cut interest rates by 25bp and expects two more rate cuts in the second half of the year if the inflation outlook remains unchanged. This week, the Riksbank cut its benchmark interest rate from 4.00% to 3.75%, in line with market expectations, and this adjustment is the first rate cut by the Riksbank since 2016. The Riksbank said inflation was approaching its 2% target and economic activity was weak, so the Riksbank could ease monetary policy. In addition, the Bank of England announced this week that it would keep its benchmark interest rate unchanged at 5.25%, and Bank of England Governor Andrew Bailey said that the timing of the rate cut will depend on various indicators, but "future rate cuts may exceed market expectations". The current market expects the European Central Bank to cut interest rates before the Fed at its June interest rate meeting.
1.3 China and Asia-Pacific markets Chinese mainland: Imports and exports turned positive year-on-year in April, and CPI and Caixin PMI data showed that fundamentals continued to improve. In US dollar terms, mainland imports in April 2024 increased by 8.4% year-on-year to US$220.1 billion, compared with a year-on-year decrease of 1.9%, and exports increased by 1.5% year-on-year to US$292.45 billion, a year-on-year decrease of 7.5%. Boosted by the continuous recovery of household consumption, the CPI in the mainland turned from a decline to an increase month-on-month, and the year-on-year increase expanded, with the CPI rising by 0.1% month-on-month in April (-1.0% month-on-month in March) and 0.3% year-on-year (+0.1% year-on-year in March). Core CPI, which excludes food and energy prices, rose 0.2% month-on-month (-0.6% month-on-month in March), while core CPI rose 0.7% year-on-year, an increase of 0.1 percentage points from March. At the same time, due to the phased decline in demand from some industries, the PPI in the mainland still declined in April, but the year-on-year decline narrowed from the previous month. In April, Caixin China's manufacturing PMI recorded 51.4, a slight increase of 0.3 percentage points month-on-month, the highest value since March 2023 for two consecutive months; The Caixin services PMI edged down 0.2 percentage points to 52.5, while the growth in the manufacturing sector was greater than the decline in the service sector, driving the Caixin China Composite PMI to rise by 0.1 percentage points to 52.8, the highest since June 2023. Hong Kong, China: PMI fell slightly in April, and mainland visitors to Hong Kong increased by 22% year-on-year during the May Day holiday. Hong Kong's S&P PMI came in at 50.6 in April, down 0.3 percentage points from March, reflecting two consecutive months of expansion in the business environment, but the improvement slowed month-on-month. According to the S&P survey, new orders of Hong Kong companies surveyed fell in April from the previous month, and companies curtailed purchasing activities for eight consecutive months, while inventories fell back to the lowest level in three months. In terms of confidence, the outlook remains bearish on the whole, but the pessimism has eased. The Hong Kong SAR Government estimates that about 766,000 Mainland visitors visit Hong Kong through various land, sea and air control points during the May Day holiday, with an average of about 153,000 Mainland visitor arrivals per day, an increase of 22% year-on-year, and the HKSAR Government expects that the relevant inbound visitors will bring more than HK$2 billion in consumption revenue to the local economy. According to preliminary statistics from the local hotel industry, the overall occupancy rate of hotels during the May Day holiday exceeded 85%. Japan: Real wages fell for the second consecutive year in March, and BOJ members called for steady interest rate hikes. Adjusted for inflation, Japan's real wages fell 2.5% year-on-year in March. Recurring pay increased 1.7% in March, while overtime pay fell 1.5% year-on-year. Nominal overall cash income of salaried recipients increased by 0.6% year-on-year, slowing from 1.4% in February. According to the opinions of the Bank of Japan's April policy meeting, several members of the central bank's deliberations agreed that it is necessary to raise interest rates and eventually reduce the scale of the central bank's bond purchases. Some members warned that inflation may exceed expectations; One member pointed out that if the outlook in the April quarterly report is realized, the 2% inflation target will be achieved consistently and steadily for about two years, and the output gap will be positive, so interest rates may be higher than current market expectations. Southeast Asia: Indonesia's Q1 GDP growth was better than expected. Indonesia's GDP grew by 5.11% year-on-year in the first quarter, better than market expectations and the fastest pace in three quarters, with private consumption being the main driver. Previously, Bank Indonesia raised interest rates by 25bp on April 24, the first rate hike since October 2023, and the 7-day reverse repo rate was raised to 6.25%, the highest since 2016. The economic recovery provides more room for Bank Indonesia to further tighten monetary policy and support the rupiah exchange rate if necessary.
2. Financial market dynamics There are no new listings in the primary market of Hong Kong stocks during the week. This week, a total of 2 small new listings - public property manager Hongying City Services, and online marketing service provider Mai FTSE plan to list on the Hong Kong Stock Exchange next week, with a total initial offering of 411 million yuan. The secondary market continued to rise due to fundamentals and favorable policies. Under the background of foreign capital rebalancing, Hong Kong stocks are relatively active, and Hong Kong stocks continued to rise this week under the help of factors such as the strengthening of US stocks and the favorable policies of the mainland. At the end of last month, the Politburo meeting of the Central Committee mentioned the flexible use of policy tools such as interest rates and reserve requirement ratios to increase support for the real economy, and said that the policy measures to digest the stock of real estate and optimize the incremental housing will be studied in a coordinated manner; This week, Shenzhen and Hangzhou further launched favorable policies such as adjusting residential purchase restrictions and strengthening housing credit support. The export and Caixin PMI data released this week also showed that the mainland's economic recovery momentum has strengthened. In addition, the U.S. government revoked Qualcomm and Intel's export licenses for selling semiconductors to Huawei, and strengthened controls on Huawei's chips, disrupting the performance of the Hong Kong stock technology sector in the middle of the week. As of the close of trading on May 10, the Hang Seng Index closed at 18,963.68 points, up 2.6% for the week, while the Hang Seng Tech Index fell 0.2%. During the week, the southbound funds of Hong Kong stocks had a cumulative net inflow of HK$11.36 billion this week.
In terms of policy, market sources indicate that the regulator is considering reducing the dividend and dividend tax on Hong Kong Stock Connect investments by mainland individual investors, which is currently 20%; Previously, the chairman of the Hong Kong Securities and Futures Commission, Lui Tim Leung, also proposed to reduce the tax level of dividends and dividends for individual investors in the Hong Kong Stock Connect and lower the access standards for mainland investors in the Hong Kong Stock Connect. If the relevant measures are implemented, it is expected to further enhance the attractiveness of Hong Kong Stock Connect stocks, especially the high-dividend sectors, to mainland investors, and help improve the liquidity of the Hong Kong stock market in the medium to long term. In addition, HKEX plans to launch weekly contracts on 10 stock options by the end of this year. The Hong Kong Stock Exchange announced that the relevant Hong Kong stocks include the Hong Kong Stock Exchange, HSBC, Tencent, Kuaishou, BYD Shares, Pingbao, Meituan, JD.com, Baidu, and Alibaba. The exchange said that it will add weekly and bi-weekly contracts in addition to the existing monthly contracts, so that investors can manage their positions in response to short-term or specific events, such as corporate earnings announcements. According to data from the Hong Kong Stock Exchange, weekly Hang Seng Index options are one of the fastest-growing derivatives products, with an average daily trading volume of nearly 13,000 contracts in 2023, an increase of 2.8 times from 2019, accounting for about 31% of the total trading volume of the entire Hang Seng Index options product line. 2.1 Money Market In terms of Chinese dollar lending, the liquidity in the offshore market is generally loose. The number of initial jobless claims in the United States exceeded expectations this week, and the Fed's dovish signals supported market expectations that the Fed would cut interest rates this year. The overall liquidity of the offshore Chinese dollar lending market is loose, and medium- and long-term trading is relatively active. During the week, the reference quotation of overnight trading remained around 5.35%, the quotation of 1-month USD funds was 5.57%-5.60%, and the quotation range of 2-month and 3-month USD funds was 5.65%-5.70%; The 1-year USD reference rate is in the range of 5.70-5.75%. In terms of US dollar repo, the 1-month and 3-month closed at 5.61% and 5.65% respectively, maintaining a narrow range. In terms of Hong Kong dollar borrowing, short-term liquidity was loose during the week, and interest rate spreads between the United States and Hong Kong widened slightly. This week, the Hong Kong dollar short-term interbank interest rate fell slightly, and the overall liquidity remained balanced. As of May 10, the overnight, 1-month and 3-month HKD interbank rates were 3.69%, 4.16% and 4.58% respectively, with weekly changes of -73.3bp, -23bp and -2.1bp respectively, and the spread between the 1-month US dollar LIBOR and the Hong Kong dollar HIBOR widened by 22.7bp to 127.4bp. In terms of offshore RMB, the interest rates of CNH maturities fell as a whole during the week. This week, the liquidity balance of offshore RMB is loose, and short-term interest rates have been lowered significantly. As of May 10, the 1-week, 3-month and 1-year CNH HIBOR closed at 2.76%, 3.33% and 3.34% respectively, with weekly changes of -88.5bp, -37.9bp and -6.7bp respectively.
2.2 Bond Market U.S. Treasuries: Weaker-than-expected employment data continues to support expectations that the Fed will still cut interest rates this year, but the price level remains resilient; At the same time, the US Treasury auction during the week showed that both end-user demand and bid coverage improved despite lower interest rates than the previous one. This week, U.S. Treasury yields basically maintained the downward trading trend after the non-farm payrolls, and the curve fell by about 10-20bps from the April high. Markets are focused on inflation and retail sales data next week, with major maturity yields rebounding slightly at the end of the week. As of May 10, the 2-year, 5-year, and 10-year U.S. Treasury yields have changed by +6bp, +4bp, and +0bp respectively during the week, and were at 4.87%, 4.52%, and 4.5% respectively at the end of the week. This week, the yield of the corresponding maturity fluctuated in a narrow range, and the inversion of the interest rate differential between China and the United States deepened slightly. China Debt: The cultural and tourism market in the mainland during the May Day holiday was generally stable and orderly, and the number of trips increased by 7.6% year-on-year; In April, the growth rate of imports and exports was better than expected, and business activities continued to pick up. This week, the central bank withdrew a net of 440 billion yuan; The yield on one-year interbank certificates of deposit (AAA) was at 2.10% as of May 10, up 0.3bp from the end of the previous week, the yield on 10-year treasury bonds was at 2.32% at the end of the week, down 2.4bp from the previous week, and the yield on 10-year CDB active bonds fell by about 1.5bp to 2.39% at the end of the week.
Offshore bond market: In terms of Chinese dollar bonds, a total of 5 Chinese dollar bonds have been priced this week, with an estimated issuance size of US$950 million, mainly financial and urban investment bonds. In the secondary market, a number of favorable real estate policies supported the high-yield sector of Chinese dollar bonds to continue to rise during the week, and the return index of Chinese dollar bonds in finance and urban investment rose in a narrow range. In terms of offshore RMB bonds, a total of 3 offshore RMB bonds were priced this week, with a total issuance size of RMB 2 billion, of which China Everbright Bank Hong Kong issued RMB 1.5 billion offshore RMB bonds.
2.3 Foreign Exchange Market Against the backdrop of the US dollar's narrow range fluctuations and lack of upward momentum, the Hong Kong exchange rate was supported by the demand for funds in the stock market, and the offshore RMB exchange rate weakened slightly. The U.S. dollar index fluctuated in a narrow range this week due to weak employment data, and the hawkish comments of the Bank of Japan also eased the pressure on the yen to depreciate, and the market waited for the latest U.S. inflation data, the U.S. dollar index fluctuated in the range of 105-105.5 this week, closing the week at 105.31. This week, the interest rate differential between the United States and Hong Kong widened slightly, with the Hong Kong dollar exchange rate only slightly falling by 0.01%, and the US dollar closing at 7.8133 against the Hong Kong dollar at the end of the week. At the same time, CNH's short-term liquidity is loose, USDCNH traded in the range of 7.21-7.23 during the week, and closed at 7.2327 at the end of the week, with CNH weakening slightly by 0.6% on a weekly basis. As short-end CNH liquidity eased, the swap curve moved lower this week, with the next-day swap point of USD/CNH falling to -6.1 pips from -4.6 pips in the previous week, and the 1-year swap pivot falling to about -1690 pips from -1658 pips.
3. Strategic outlook for the market outlook In terms of Chinese bonds, there are many disruptive factors in the current bond market. In the short term, since April, the regulatory level has indicated interest rate risks around 2.2%-2.25% of 10-year treasury bonds and 2.4% of 30-year treasury bonds, indicating that it is difficult to break through the 2.2%-2.25% of 10-year treasury bonds without cutting interest rates, and the central bank invested 440 billion yuan at the end of April to protect liquidity, indicating that the rapid rise in interest rates triggers negative feedback that is not in line with the central bank's policy objectives. In the medium term, the fundamentals, supply and supervision of government bonds in the second quarter are the more obvious factors that disturb the bond market and capital, and manual interest rate supplements and deposit interest rate cuts are hidden factors. The large supply shock of government bonds will disturb the capital side; Regulatory indicators suggest that interest rate risk and stock market risk appetite have increased, cooling bond market sentiment. If the supply of special bonds and special treasury bonds is concentrated at the end of the half year, the 10-year treasury bonds may exceed 2.4%, and the 10-year treasury bonds can start to pay attention to the allocation opportunities around 2.35%, and 2.4%-2.5% has a good allocation value.
In terms of U.S. bonds, high-frequency U.S. fundamental indicators have continued to weaken since late April, and yields have fallen in tandem. However, the CPI released next week is likely to be higher than market expectations, stimulating a short-term rebound in yields. In addition, Fed officials maintain a hawkish tone, coupled with the acceleration of US bond issuance, it is difficult for yields to fall significantly. Technically, 4.4% and 4.2% below are strong short-term resistance levels, and 4.6% and 4.7% above resistance. In terms of the RMB exchange rate, as A-shares have come into a strong technical resistance range, investors have become more cautious, the pace of capital inflows has slowed, and the implied US dollar interest rate margin for domestic swaps has risen. The central parity of the US dollar against the yuan continued to remain around 7.10, and the dollar against the yuan remained in a narrow range, and the pressure on the yuan continued to accumulate. Under the premise that the central parity does not adjust significantly, the USD/RMB is expected to continue to maintain a narrow range of low volatility. USDCNY resistance above at 7.25 and support below at 7.21. In terms of commodities, the return of gold valuations and the recovery of bullish sentiment at low levels provide a margin of safety for gold prices, although there is still strong resistance at $2,400/oz. Bulls can choose the opportunity to increase their holdings and wait for a new drive to lead gold prices to break out. The spot spread of crude oil fell to the low level in January, and the net long of the fund fell to the low level in mid-February, which may indicate that there is limited space below oil prices, but the upward recovery of oil prices needs to be driven by demand. (For details, please refer to the FICC Strategy Report "Choosing the Right Time to Increase Gold - FICC Strategy Report 2024 Issue 12")
★
★
Disclaimer
CIB Research Co.,Ltd. Chinese The information provided in this report is obtained in accordance with international and industry standards and through legal channels, but does not guarantee the accuracy and completeness of the information stated in the report, and readers of the report should not rely on the accuracy and completeness of the information.
The information provided in this report reflects the judgment of this report at the time of the initial public release, and we reserve the right to supplement, correct and revise the relevant information at any time, but do not guarantee that it will be released in a timely manner. The content of this report is for the reference of the report reader only, and all business decisions will be made by the report reader after synthesizing the information of all parties, and our company does not assume any responsibility for any direct or indirect consequences caused by the information provided in this report.
The judgments in this report are based on the researcher's own knowledge and inclination, and should be regarded as the researcher's personal opinion and do not represent the institution. Our company may issue other reports that are inconsistent with the information provided in this report or express different views based on objective circumstances or different data sources or analysis. The researcher himself believes that he adheres to an objective and neutral position, but does not make any guarantee that the relevant information expressed in the report is directly or indirectly related to the business interests of our company, and the relevant risks must be independently assessed by the reader of the report, and our company and the researcher do not assume any legal responsibility that may arise therefrom.
The information and opinions expressed in this report do not constitute any offer or investment advice and should not be relied upon as the basis for any investment research decision, and no action is taken to ensure that the information contained in this report is appropriate for individual investors or any individual, and we do not recommend any action based on this report.
Nor should the reader of the report interpret any statements in the report from a strictly economic perspective and without any ethical, political or other biases, and neither we nor the researchers themselves accept any responsibility for the consequences of any interpretation based on these biases, and reserve all rights to take action to protect their rights.
The copyright of this report is only owned by our company, and no institution or individual may reproduce, reproduce and publish it in any form without written permission. Unless it has been officially published in a public publication, it should be regarded as a non-public act of discussion and analysis. If it is quoted or published, the source must be indicated as "Industrial Economic Research & Consulting Co., Ltd.", and this report shall not be quoted, abridged or modified contrary to the original intention.
Our company has the right to modify and interpret the terms of this disclaimer.