Economic Observation: Economic Activity Is Close To The Bottom Level In The Short Term.

Recently disclosed PMI data show that economic activity has further weakened, but sales of commercial housing continued to pick up in the middle and December, and the price of first tier cities began to rise, which further implied that the drag effect of real estate on the economy was coming to an end. The growth rate of public expenditure in recent years has been maintained at the level of 0 annex, but it is expected to increase significantly next month. Taking into account these factors, the current economic activity may be very close to the bottom level in the short term.

In mid December, the credit debt market suffered an additional policy shock, and the yield rose sharply. The interest rate of money market also rose comprehensively under the impetus of new and seasonal capital demand. As a response, the central bank launched SLO and renewed MLF. In terms of trend, taking into account the growth of bank credit, we think that bond yields may have been in a concussion pattern.

Crude oil prices continue to fall, triggering the collapse of the ruble exchange rate. It seems that the Russian economy will shrink significantly, the possibility of debt default is increasing significantly, and worries about risk activities have affected the recent trend of global financial markets, and the US dollar has strengthened and the stock market has fallen. Against this background, the AH share premium continues to expand to more than 20%. We believe that although the profit expectations of A shares continue to improve, liquidity mitigation is also more obvious, but the market may have a certain degree of overdraft of favorable factors, and need time to digest.

First, economic momentum is still weak, but the economic outlook is not pessimistic. In December, HSBC's manufacturing PMI initial value was 49.5%, down 0.5 percentage points from November. The output index is low and stable, and has picked up slightly; the new order index has fallen considerably, which is the main drag of the general index's fall.

In the middle and December of last year, international crude oil prices continued to fall, which was similar to that of the previous two months, and further drove the prices of domestic products to fall to varying degrees. The decline in prices has a negative impact on the production of products on the chain in the past few months, through the way of inventory impairment and inventory clearance.

Global economic growth is still weak and is a drag on China's exports. In November, the export growth rate and the export delivery value growth rate all appeared downward. The continued decline of crude oil prices triggered the collapse of the ruble exchange rate, greatly increased the risk of economic and financial turmoil in some oil producing countries, and further spanmitted to other emerging countries, which also cast some shadow on short-term global economic growth and China's external demand.

The short-term economic momentum is undoubtedly still weak, but we are not pessimistic about the outlook for the first half of next year.

The rebound in commercial housing spanactions shows sustainability, which supports the real estate development investment in the first half of next year. So far December, commercial housing sales in large and medium-sized cities have improved significantly, up to 20% near the same level. The new housing price index has also narrowed for third consecutive months, especially for the second-hand housing prices in the first tier cities.

The ratio of fiscal expenditure to nominal GDP is around 25%. The growth of fiscal expenditure in the second half of this year has been greatly reduced, which is undoubtedly an important driving factor for the weakening of economic momentum in the past few months. 10, in November, fiscal expenditure even slipped to near 0, significantly lower than the growth rate of over 20% in 5 and June. With the implementation of the new budget, the fiscal expenditure will probably rise again in the first half of next year, and it may become a force supporting the short-term economic growth again.

Since September, the pace of monetary policy easing has accelerated and is playing a positive role in the financing of the real economy. Financing costs began to go down. For example, the rate of basic loan interest rate (LPR) has dropped by 24BP after the interest rate cut; the weighted lending rate in September has dropped by 12BP compared with August, and 10 and November may still be in the downstream channel. Although the amount of financing has not yet fully recovered, the credit market in the banking sector began to rise significantly in November. A positive monetary policy plays an important role in supporting the recovery of real estate sales, the investment in fixed assets and the recovery of inventory activities.

Looking back at the economic performance since April 2012, we can see that a series of domestic and foreign impact factors, such as the European debt crisis, the Fed's monetary easing, the Chinese government's willingness to grow steadily, and the fluctuation of financial expenditure, have induced the short-term economic impulse. Empirical data show that the average duration of the impulse rise or fall of the economy is 3-6 months. From the data of PMI, HSBC PMI, industrial added value and so on, we can see that the weakening of this economic kinetic energy may start at some time in 7-8 months, and so far has lasted for nearly 5 months. Does this mean that the process of this economic pulse is coming to an end, which is worth noting.

Two, energy chemicals continue to fall, CPI maintains low crude oil prices continue to plummet, driving prices of related energy and chemical products down sharply. Due to this drag, the price ratio of mining and raw materials in December may be difficult to pick up or even deteriorate.

Besides, the price of other mining and raw materials is mixed. For example, the price of rebar has continued downward since mid November, and the price of plate has been more positive. The price of non-ferrous metals dropped significantly in December. Cement prices have also been slightly weakened recently, which is largely influenced by seasonal factors and needs to be noted. Steam coal prices continued to pick up moderately.

On the CPI side, the re weakening of economic growth kinetic energy since August and the collapse of international crude oil prices have driven them down year by year, down from 1.4% in November.

High frequency data in December showed that vegetable prices rose significantly, and pork prices slowed down. The price of food has contributed to the upward trend of CPI in December. But considering that economic momentum and crude oil prices are still weak, CPI will remain low in the short term.

Three, the bond market money market attacks, the RMB spot exchange rate depreciation since mid November, by the new, stock market diversion, local government stock debt screening, especially the growth of bank credit and other factors, interbank liquidity is not generally loose, long short term bond yields began to hit bottom, and there is a small rebound.

Against this background, in the evening of December 8th, China Securities Regulatory Commission issued a new regulation on the adjustment of exchange bond repurchase qualifications. Although the new regulation is not aimed at stock bonds for the time being, because of the strong policy adjustment and inadequate communication in advance, it still has a huge impact on the low rated credit debt market of the exchange, and quickly spread to the interbank credit debt and spread to the high-grade credit debt.

After the announcement, 5 year AA+, AA and AA- corporate bonds. Rate of return Near the upstream 45BP, AAA corporate debt goes up 20BP. In the middle of December, as the interbank assets continued to tighten, the yield of 5 - year credit bonds remained at a high level. The impact of long end interest rate debt is not large.

Entering the second half of 12 months, the new round will be new and seasonal. Capital demand Vigorous, September MLF is about to expire and so on a series of factors, the interbank short end interest rate soar. In December 17th, interbank overnight bond repurchase rates rose 37BP to 3.13%. 18 further upward 43BP to 3.64%, the highest level since February of this year. Repurchase rates rose in other periods. Short end bond yields also rose sharply, and the national debt yield curve even appeared upside down.

Due to the sharp rise in short end interest rates, the rate has significantly exceeded the central bank's short end interest rate corridors. In December 17th, the central bank launched SLO and continued to do some MLF. On the 18 day, the central bank further provided SLO and continued to do some MLF. As the "fusing" mechanism of money market, SLO is not restricted by open market operation day (Tuesday and Thursday). In actual application, it can be put on a large scale continuously until the funds of short end are effectively reduced.

along with financial system The resumption of the supply of credit in the real economy has come to an end since September. The growth of bank credit, the adjustment of deposit and loan ratio, the adjustment of interbank payment and other regulatory policies and the game and alternation between central bank's monetary easing will dominate the trend of interest rates between banks in the future. We tend to believe that bond yields are in a concussion pattern before the evidence of full economic recovery is confirmed.

The policy impact of local stock debt screening and exchange pledge qualification adjustment makes the credit bond yield at a relatively high level. With the smooth recovery of the inter bank assets and the extinction of the policy shock, the central debt of the credit bond yields will be downward. In addition, the implementation of these new policies is bringing the differentiation of yields between credit bonds.