Text | China Merchants Macro Zhang Jingjing team
Key takeaways
The Third Plenary Session of the 20th Central Committee of the Communist Party of China (CPC) will be held in Beijing from July 15 to 18, and the meeting will review the Decision of the CPC Central Committee on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization. After the sales area of commercial housing in 30 cities hit a new high in the year last week, the indicator fell seasonally this week, and second-hand houses still showed the characteristics of exchanging price for volume, but the price decline converged. High-frequency data shows continued weakness in prices, but production has improved and logistics data are in line with seasonality. Overseas, the US ISM non-manufacturing PMI for June, released on Wednesday, was the lowest since May 2020, opening a trade in interest rate cut expectations, which was further strengthened by June employment data. It is expected that the Fed's interest rate cut is expected to last for 2-4 weeks, and U.S. bonds, U.S. stocks, nonferrous metals, precious metals and even RMB-denominated assets will benefit to a certain extent. The Third Plenary Session of the 20th Central Committee of the Communist Party of China (CPC) will be held from July 15 to 18, and the five meetings of the Central Committee for Deep Reform since the 20th National Congress have revealed some of the key areas for deepening reform in the next stage. High-frequency data shows that the sales of commercial housing and second-hand housing improved significantly last week, and the production and logistics indicators rebounded. 1) The Third Plenary Session of the 20th Central Committee will review the Decision of the Central Committee of the Communist Party of China on Further Deepening Reform in an Comprehensively Manner and Promoting Chinese-style Modernization. On June 27, the Political Bureau of the CPC Central Committee held a meeting and decided that the Third Plenary Session of the 20th Central Committee of the Communist Party of China would be held in Beijing from July 15 to 18. This meeting will review the "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization". The Central Committee for Comprehensively Deepening Reform was established in 2018, and its main agenda focuses on all aspects of further deepening reform. Since the 20th National Congress of the Communist Party of China, the five meetings of the Central Reform Commission have revealed some of the key areas for deepening reform in the next stage: first, innovation and development; the second is to deepen the open environment and promote reform and development through opening up; the third is to improve the security guarantee capacity in the field of major resources; Fourth, green development and transformation. In addition, the state-owned capital operating budget involving broad finance and the emergency management capacity related to security have also passed relevant documents in these five meetings, which are also the direction of reform that can be paid attention to next. 2) Last week, the sales area of commercial housing in 30 cities hit a new high in the year, and this week the indicator fell seasonally. Last week, the sales area of commercial housing in 30 cities was 3,148,300 square meters, an increase of 42.3% month-on-month, and a cumulative improvement of 93.6% month-on-month in the past half month, which also refreshed the highest record of single-week transactions since the beginning of this year. However, from July 1 to 6, the average daily transaction of commercial housing in the 30 major cities was 286,900 square meters (the previous value was 494,300 square meters). In addition, the supply and demand of second-hand housing in the city have improved to a certain extent. Last week, the second-hand housing listing index fell by 2.67% month-on-month, which was the first month-on-month decline since the 5.17 New Deal, and the month-on-month decline in the listing price index was significantly narrower than the average level this year. Since last year, the effect of the easing of real estate sales policies has been short-lived. After the 5.17 policy briefing, the relaxation of the commercial housing sales policy has not been weaker than in the first half of 2015, if the high-frequency data of commercial housing sales can continue to maintain the current level, then the contraction effect of the deep adjustment of the real estate market on China's economy may be marginally slowed down. 3) High-frequency data shows that the performance of price indicators continued to weaken last week, but production indicators improved instead, and logistics data rebounded year-on-year. The operating rate strengthened slightly, the capacity utilization rate remained stable, and the production performance improved significantly. In the case of weak prices, overall upward inventory, and frequent meteorological disasters, the month-on-month recovery in production volume is somewhat more than expected, and it is not consistent with the performance of the manufacturing PMI in June, which continues to be below the critical value. This may be related to the fact that the mainland's GDP accounting adopts the production method. Since the beginning of this year, the vehicle freight flow index, the throughput index of public logistics parks and the throughput index of distribution centers of major express delivery companies announced by G7 have continued to grow negatively year-on-year after the Spring Festival. However, last week, the vehicle freight flow index and the throughput index of the distribution center of major express delivery companies grew positively for the first time in nearly four months, and the throughput index of the public logistics park was still negative year-on-year, but the decline was also the lowest level after the Spring Festival. In addition, rail freight traffic hit its highest level this year last week, and highway truck traffic rebounded significantly month-on-month. In April, the overall momentum of the United States to actively replenish the treasury was weak, the new data of the United States non-farm payrolls in June rekindled the expectation of interest rate cuts, and the uncertainty of political elections in the United States and Europe is still rising. 1) In April, 11 of the 14 major industries in the United States were in active replenishment, but due to the strong active replenishment in the previous round (2020.7-2021.4), the slope of the current round of inventory cycle was suppressed to a certain extent, so from the data level, this round of active replenishment is assessed as a weak replenishment. Under the caliber of Census Bureau, the total inventory of the United States in April increased by 0.96% year-on-year, compared with 0.59% in the previous month; Total U.S. sales in April increased by 2.18% year-on-year, compared with 2.09% in the previous month. Under the BEA caliber, the total inventory of the United States in April was 1.12% year-on-year, which has rebounded for six consecutive months, and the previous value was 0.92%; The total sales in April were 2.45% year-on-year, and the previous value was 2.09%. Upstream and downstream replenishment is still ahead of the midstream, from the perspective of inventory rebound, in April, metal and mining, electrical equipment, household appliances and components inventory year-on-year, machinery manufacturing, automobiles and auto parts 4 industry inventory fell year-on-year, the remaining 10 industry inventory rebounded year-on-year. From the perspective of the historical quantile of inventory year-on-year, the year-on-year quantile of overall inventory in April was 23.6%, and the year-on-year quantile of inventory in most industries continued to rise. 2) The U.S. non-farm payrolls data for June slightly exceeded expectations, but the previous month's data was revised sharply downward, the unemployment rate rebounded to 4.1%, and the expectation of interest rate cuts was rekindled. The non-farm payrolls in June were 206,000, although slightly higher than the market expectation of 190,000, but the non-farm payrolls in May were lowered to 218,000 from the preliminary value of 272,000, and the new data in April were revised down again from 165,000 to 108,000, with a total downward revision of 111,000, and the unemployment rate rebounded to 4.1%, compared with the previous value of 4.0%. Previously, Fed member Bowman made a hawkish statement on the difficulty of supply-side inflation to continue to decline and not to cut interest rates this year, which once led to a rebound in U.S. Treasury yields. As the non-farm payrolls data reflects the moderate cooling of the demand side, the market expectation that the Fed has room to cut interest rates during the year has been further confirmed, this week Fed Chairman Powell and vote committee member Daly also made a dovish statement on the equilibrium process of the labor market, after the release of the data, the short-end of the US Treasury yield fell more than the long-end, the US 2-year yield fell to around 4.637%, the 10-year yield fell to around 4.315%, and the US dollar index fell slightly to around 105. 3) Other economic data released this week also showed a marginal slowdown in the U.S. economy and a cooling labor market. The ISM manufacturing PMI in the United States recorded 48.5 in June, in the contraction range for the third consecutive month, and the employment and price indices both declined, while the ISM non-manufacturing PMI of 48.8 was the lowest since May 2020, which was significantly lower than expected, and the employment and price indices also fell marginally. Despite the rebound in JOLTS job openings in May, ADP employment fell more than expected in June, and the four-week average of initial and continuing jobless claims continued to be on an upward path. 4) Uncertainty about political elections in the United States and Europe is still rising. The U.S. Supreme Court ruled that Trump should enjoy immunity from criminal prosecution for "official acts of office" during his term of office, a ruling that could delay Trump's trial until after the U.S. election[1]. The results of the first round of the French National Assembly election showed that the far-right parties supported the lead, but the overall advantage was less than expected, and the results of the second round of the election are still uncertain[2].
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Macro Weekly View
1. The sales area of commercial housing in 30 cities hit a new high in the year
2. The U.S. unemployment rate rebounded to 4.1% in June
Note: [1]https://www.cls.cn/detail/1720212[2]https://www.nbd.com.cn/articles/2024-07-01/3447484.html
Risk warning: domestic and overseas policies exceed expectations.
The above content is from the report "A Wave of FED Interest Rate Cut Expectations - Macro Weekly Views (July 7, 2024)" on July 7, 2024, and the report authors Zhang Jingjing, Zhang Yiping, Zhang Antian, Ma Ruichao, etc., please refer to the research report for details.
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