What Does the "Strengthening" Signal Indicate?

What Does the "Strengthening" Signal Indicate?

• News
• 2024-09-02

01

Market Review

Overseas, the Q3 earnings season for US stocks has begun, with financial sector companies reporting overall positive results. The expectation of a soft landing for the US economy continues to support the stock market trend, but market risk appetite is suppressed, trading volume is gradually decreasing, and volatility remains at a high level. Strong US fundamental data, slowing inflation, and receding expectations for significant interest rate cuts have driven US Treasury yields higher overall, with 10-year US Treasury yields remaining above 4% amidst reflation risks, and the yield curve slightly steepening. Gold prices fluctuated, oil prices experienced significant volatility, and domestic real estate and infrastructure-related varieties performed weakly. Strong US economic data, cooling expectations for substantial Fed rate cuts, and the approaching election have led to an overall strengthening of the US dollar index; a weak Eurozone economy and the ECB's continued dovish stance have extended the euro's downward trend against the US dollar.

Domestically, A-shares started the week high and experienced significant fluctuations, with a noticeable correction compared to before the National Day holiday, with large-cap stocks showing relative resilience, and Hong Kong stocks also undergoing wide-ranging fluctuations. The domestic bond market faced central bank liquidity withdrawal and redemption pressures at the beginning of the week, leading to a fluctuating upward trend in yields; as the stock market adjusted and the market digested fiscal policy expectations, liquidity pressures eased, and the bond market迎来了 a strong rally.

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02

Industry Situation

This week, the electronics sector was relatively resilient. The market experienced a shift from a general index rally to a focus on main themes, with the electronics and chip-related sectors greatly benefiting from the resonance of favorable policies and positive fundamentals, which is expected to gather stronger consensus and attract substantial capital inflows.

The social services sector saw a significant decline this week. In the short term, market trends are mainly determined by changes in capital and investor expectations. The sector experienced a rapid rise before the holiday, and with widespread profit-taking, the demand to sell was relatively urgent, leading to market divergence.Strategy Perspective

◆ [Minsheng Research: Ministry of Finance Press Conference, What Kind of "Strengthening" Signal?]

The Ministry of Finance press conference this time conveyed four unusual signals worth paying attention to:

First, surrounding the scale-related issues that the market cares about the most, the Ministry of Finance hinted at "strength" in multiple answers. For example, in terms of word frequency, "relatively large" was mentioned 7 times, "deficit" 4 times, and "borrowing" 4 times. This is unusual compared to the press conferences held by the Ministry of Finance in recent years. Therefore, we expect that the incremental policy of this round will be a relatively large-scale plan over many years, and neither the pace nor the scale will be "behind the curve".

Second, the logic behind the introduction of the increment is to first repair the balance sheets of micro-entities, and then to stimulate consumption and investment. This is consistent with the deduction in our previous report "Macro Suspense After the Festival". Especially the "proposed one-time increase in a relatively large scale debt limit" emphasized by the Ministry of Finance, as Minister Lan said, "will greatly reduce the pressure of local debt, and free up more resources for economic development". The "issuance of special treasury bonds to supplement the capital of commercial banks" follows a similar logic, that is, only when micro-entities no longer do "subtraction" on the asset and liability side, can more incremental policies achieve the effect of "addition".

Third, the "3% deficit rate red line" is likely to become a thing of the past, giving future fiscal efforts room for imagination. In recent years, except for major sudden public health events like the pandemic, even during the China-US trade dispute, China's target deficit rate has never exceeded 3%. However, at today's press conference, Minister Lan mentioned more than once that "the central finance has a relatively large space in borrowing and increasing the deficit", indicating the determination of the future central government to increase leverage. Looking at the deployment of the Ministry of Finance's next work, "improving residents' income expectations and stimulating consumption potential" is ranked before "driving effective investment and expanding domestic demand", showing that the structure of future incremental space is being optimized and adjusted.

Fourth, the coordination and cooperation between fiscal and financial policies are continuously advancing. This press conference specifically expanded on how finance supports banks and the real estate industry - in terms of supporting finance, it is achieved through bond issuance and capital injection, but unlike in the past, this special treasury bond issuance to supplement the capital of state-owned large commercial banks emphasizes "overall promotion, phased and batch, and one bank, one policy", fully reflecting flexibility and differentiation. In terms of supporting the real estate industry, further deployment was made on the "control of new housing increments and optimization of stock" from the September Politburo meeting. The main increment of this round of policy is reflected in the support of local special bonds for land reserves and housing reserves, as well as the study of canceling the value-added tax policy for non-general housing connections. However, to promote the real estate market to stop falling and stabilize, future coordination and strengthening with other ministries and commissions and the Ministry of Finance are still needed.

Looking forward, the "scale" suspense of this round of incremental policies is expected to be finalized in the next two weeks. As Minister Lan hinted at this press conference, "a package of targeted incremental policy measures that are currently in the decision-making process" refers to the Standing Committee of the National People's Congress to be held in late October. At that time, the package scale for resolving local debt risks and special treasury bonds will emerge. We believe it is also worth paying attention to whether there will be guidance signals for increasing the space for central government borrowing and deficit rates.For the bond market, the benefits of incremental fiscal policies may be largely concentrated in the credit sector, especially in the urban investment segment. Against the backdrop of the Ministry of Finance's "strengthened support for resolving local government debt risks," the debt repayment pressure on urban investment may be further alleviated, and the alleviation of credit risk is conducive to further narrowing of spreads. As for interest-bearing bonds, the short-term impact is mainly the increased supply at the end of the year. The bond issuance signals released at the summary meeting are roughly 400 billion yuan in local debt quota carryover + special treasury bonds + additional debt swaps + potential deficit increase. The scale of the latter three has not yet been announced, but the new supply is within market expectations. Therefore, the long-end interest-bearing bond market was relatively calm that day, with only a slight increase of 0.2 and 0.5 basis points in 10-year and 30-year government bonds by the morning close. The "fiscal answer" expected by the bond market in the fourth quarter may still have to wait until the Standing Committee of the National People's Congress in late October.

For the stock market, there are four aspects worth noting in this press conference. First, market sentiment may receive support. The press conference mentioned that "China's finance has enough resilience" and "the central finance still has a large space for debt issuance and deficit increase." These statements are conducive to the marginal stabilization of market sentiment, alleviating the risk of a sharp decline in the short term. At the same time, resolving local government debt risks is beneficial to enhancing local economic vitality, which may also have a supporting effect on the market. Second, issuing special treasury bonds to support large state-owned commercial banks in replenishing core tier-one capital. From historical experience, the issuance of special treasury bonds has a significant stimulating effect on the stock market. Combined with the recent implementation of "Securities, Fund, and Insurance Company Swap Facilities (SFISF)" to promote dividend stocks, there may be a repair momentum in the bank sector. Third, supporting and promoting the real estate market to stop falling and stabilize may have a supporting effect on the real estate and industry chain market, which has significantly回调ed recently. Fourth, increasing the support and assistance for student groups may be another measure conducive to consumption after reducing the interest rates of existing mortgages. It is important to pay attention to the stimulating effect on residents' consumption tendencies after the policy is implemented and the subsequent performance of the consumer sector.

Hot News

Macro Economy

◆【How strong is the package of incremental fiscal policies? Securities firms: Beyond expectations, the specific volume of policy tools may exceed 5 trillion yuan】

Lan Fo'an announced four incremental fiscal policies at the press conference, focusing on supporting local governments to resolve implicit debt, supporting large state-owned commercial banks to replenish core tier-one capital, supporting and promoting the real estate market to stop falling and stabilize, and increasing support and protection for key groups. Lan Fo'an emphasized that counter-cyclical adjustment policies are by no means limited to the above four points. These four points are policies that have already entered the decision-making process, and other policy tools are still under study, such as the central finance still having a large space for debt issuance and deficit increase. (Eastmoney.com)

◆【National Bureau of Statistics: CPI rose by 0.4% year-on-year in September, PPI fell by 2.8% year-on-year】

Data from the National Bureau of Statistics show that in September, the national consumer price index rose by 0.4% year-on-year. Among them, cities rose by 0.4%, and rural areas rose by 0.6%; food prices rose by 3.3%, and non-food prices fell by 0.2%; consumer goods prices rose by 0.5%, and service prices rose by 0.2%. From January to September, the national consumer price index rose by 0.3% compared to the same period last year. In September, the national industrial producer出厂 price index fell by 2.8% year-on-year and fell by 0.6% month-on-month; the industrial producer purchase price index fell by 2.2% year-on-year and fell by 0.8% month-on-month. (China Securities Journal)

◆【Four departments: Focus on the actual needs of building a beautiful China, plan a batch of symbolic major projects】To implement the decision-making and deployment of the Party Central Committee and the State Council on comprehensively promoting the construction of a beautiful China, and to support the construction of a beautiful China with high-quality development of green finance, recently, the People's Bank of China, the Ministry of Ecology and Environment, the General Administration of Financial Regulation, and the China Securities Regulatory Commission jointly issued the "Opinions on Playing the Role of Green Finance to Serve the Construction of a Beautiful China". It proposes 19 key measures from four aspects: increasing support for key areas, improving the professional service capacity of green finance, enriching green financial products and services, and strengthening implementation guarantees. (East Money Network)

Financial Capital

◆ [The futures market welcomes a major comprehensive document! Deploying 8 aspects and 17 key measures]

Recently, the General Office of the State Council forwarded the "Opinions on Strengthening Supervision, Guarding Against Risks, and Promoting High-Quality Development of the Futures Market" by the China Securities Regulatory Commission and other departments. This comprehensive document specifically for the futures market systematically and comprehensively deploys policy measures in 8 aspects to promote the development and supervision layout of the futures market in an all-round and three-dimensional manner.

◆ [CSRC and seven other departments: Study the inclusion of stock index futures and Treasury futures in the opening up of specific varieties]

Recently, the General Office of the State Council forwarded the "Opinions on Strengthening Supervision, Guarding Against Risks, and Promoting High-Quality Development of the Futures Market" by the China Securities Regulatory Commission and other departments. The "Opinions" deployed 17 key measures in 8 aspects. It proposes to steadily promote the opening up of the futures market. Orderly expand the scope of opening up the commodity futures market. Study the inclusion of stock index futures and Treasury futures in the opening up of specific varieties. Allow foreign futures exchanges to launch more financial products pegged to domestic futures prices. Strengthen the construction of regulatory capacity under an open environment. (China Fund News)

◆ [SSE: Another rule of the "Science and Technology Innovation Board Eight Articles" is implemented]

According to the "Guidelines", companies on the Science and Technology Innovation Board that are identified as having the characteristics of "light assets and high R&D investment" will no longer be subject to the "30% replenishment ratio" restriction when raising funds for refinancing. However, the part exceeding 30% can only be used for R&D investment related to the main business. This means that companies on the Science and Technology Innovation Board that meet the identification standards can use most of the funds raised during refinancing for R&D investment.

◆ [SZSE: From September 30 to October 11, focus on monitoring the trading of newly listed stocks]

From September 30 to October 11, the SZSE took self-regulatory measures for 447 abnormal securities trading behaviors, involving abnormal trading situations such as intraday lifting and suppression, false declarations, etc.; focused on monitoring the trading of newly listed stocks; conducted inquiries into 5 major matters of listed companies, and reported 2 cases of suspected illegal and irregular clues to the CSRC.◆【Social Security Fund Releases Annual Report with Positive Investment Returns for 2023】

The National Council for Social Security Fund released its annual report for 2023 on October 12th, showing that since its establishment, the social security fund has achieved an average annual investment return rate of 7.36%, with a cumulative investment return of 1,682.576 billion yuan. The Social Security Fund also released its annual report for the basic pension insurance fund entrusted operation for 2023 on the same day, indicating that since the entrusted management began in December 2016, the average annual investment return rate of local pension funds has been 5.00%, with a cumulative investment return of 306.671 billion yuan.

Industrial Economy

◆【He Lifeng Points Out During Research in Shanxi and Shaanxi: Resolutely Win the Battle for Housing Delivery】

He Lifeng, a member of the Political Bureau of the CPC Central Committee and Vice Premier of the State Council, conducted research on real estate, the exchange of old durable consumer goods for new ones, and foreign trade in Taiyuan, Shanxi, and Xi'an, Shaanxi from October 10th to 12th. He Lifeng emphasized the need to accelerate the work of ensuring housing delivery, increase the loan allocation for "white list" projects, ensure the on-time and quality delivery of under-construction and sold commercial housing, actively promote the acquisition of existing commercial housing for use as affordable housing, and promote the bottoming and stabilization of the real estate market.

◆【Ministry of Commerce: China Has Officially Invited the EU to Send a Technical Team to China as Soon as Possible for the Next Phase of Face-to-Face Consultations】

During the more than 20 days since September 20th, Chinese and European technical teams have conducted eight rounds of intensive consultations in Brussels. After arduous efforts, the two sides have made significant progress in some areas. China has fully listened to the demands and opinions of the China-EU business community and has proposed practical and constructive solutions to the specific concerns of the EU side on multiple occasions during the consultations, demonstrating the utmost sincerity and flexibility. However, it is regrettable that the EU side has not actively responded to issues concerning the core interests of the China-EU business community, and there are still significant differences between the two sides. So far, the consultations have not yet reached a solution acceptable to both parties.

◆【China Association of Automobile Manufacturers: Car Sales in September 2024 Were 2.809 Million Units, a Year-on-Year Decrease of 1.7%】

Data from the China Association of Automobile Manufacturers shows that in September, car production and sales were completed at 2.796 million and 2.809 million units, respectively, with a month-on-month increase of 12.2% and 14.5%, and a year-on-year decrease of 1.9% and 1.7%, respectively. From January to September, car production and sales were completed at 21.47 million and 21.571 million units, respectively, with a year-on-year increase of 1.9% and 2.4%, respectively. The growth rate of production and sales narrowed by 0.6 and 0.7 percentage points compared to the January-August period.

◆【Existing Housing Loan Interest Rates to Be Adjusted from the 25th, No Need for Customers to Apply】On the early morning of the 12th, several banks including the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, and the China Construction Bank successively issued announcements stating that starting from October 25th, they will conduct a batch adjustment of the existing personal housing loan interest rates. Except for the circumstances where the loan is located in regions such as Beijing, Shanghai, Shenzhen, and is a second-home loan, other eligible housing loan interest rates will be adjusted to the Loan Prime Rate (LPR) minus 30 basis points. Multiple banks have clarified that the adjustment of the existing housing loan interest rates will be carried out by the banks in a unified batch adjustment, and customers do not need to submit an application.

Global Market

◆ [Dow, S&P Hit Historical Highs, Popular Chinese Concept Stocks Rise, Tesla Down Nearly 9%]

On Friday, U.S. Eastern Time, the three major U.S. stock indices closed higher collectively, with the Dow and the S&P 500 index continuing to set new closing highs. As of the close, the Dow Jones Industrial Average rose by 409.74 points compared to the previous trading day, closing at 42,863.86 points, up 0.97%; the S&P 500 stock index increased by 34.98 points, closing at 5,815.03 points, up 0.61%; the Nasdaq Composite Index increased by 60.89 points, closing at 18,342.94 points, up 0.33%. For the week, the Dow rose 1.21%, the Nasdaq rose 1.13%, and the S&P rose 1.11%.

◆ [U.S. September PPI Rises 1.8% Year-on-Year, Higher Than Market Expectations]

The U.S. September Producer Price Index (PPI) rose 1.8% year-on-year, estimated to rise 1.6%, and the previous value was 1.7%; the U.S. September PPI remained unchanged month-on-month, estimated to rise 0.1%, and the previous value was 0.2%.