X-Day
Last week, global capital markets’ concerns about X-day led to a downturn in the stock market, with the US dollar index rising correspondingly, gold prices falling, and crude oil prices holding steady. On last Friday, global capital markets rose, the US dollar index slightly retreated, and gold prices slightly rose. Whether this phenomenon is due to short-term speculative forces or the end of long-term X-day still needs to be observed, and the possibility of a mid-June interest rate hike is on the rise. According to recent comments by Yellen, X-day has been postponed from June 1st to June 5th, which will relieve the pressure on the bullish forces next week. McCarthy stated that a draft agreement will appear on Sunday evening and will be voted on next Wednesday, reducing the uncertainty of X-day. Therefore, we are bullish on the global capital market next week, especially the NASDAQ index. The recent Hang Seng Index in Hong Kong has shown a clear oversold phenomenon, which now seems to be caused by factors other than X-day. Global markets fell sharply last Thursday, rebounded on Friday, but due to holiday reasons, the Hong Kong stock market closed on Friday, missing the market, there are obvious trading opportunities in the Hong Kong stock market.
After crossing X-day, we continue to enter the tripartite game stage of interest rate hikes-recession and financial stability. The recent interest rate hike will occur in mid-June, and according to CME data, the current probability of interest rate hikes has reached 64.2%. This has somewhat supported the rise of the US dollar index. Of course, this probability is a dynamic process, and at present, we need to continue to pay attention to the direction of 64. From a financial stability perspective, the global capital market does not have much downside space, and now it needs to judge whether the NASDAQ index has downside space.
As for Nikkei, the Nikkei 225 index rose last week, mainly due to the continued improvement of the Japanese economy. We believe that the Nikkei index will continue to rise.
As for recession, the latest data shows that Germany has seen negative growth for two quarters in a row, and has fallen into a technical recession. The gap between economic growth and financial stability is widening.
China
From January to April 2023, the total profit of industrial enterprises above designated size nationwide decreased by 20.6% year-on-year, a decrease of 0.8 percentage points from January to March. In April, the profits of industrial enterprises above designated size decreased by 18.2% year-on-year, a decrease of 1 percentage point from March, mainly due to the support of a low base; excluding the base of 2022-2023, the two-year average growth rate in April fell by more than 10 percentage points from March, and companies still face many difficulties in operation. Since this year, the PPI has continued to fall, and the cost of raw material production has continued to decrease, which is beneficial to the improvement of corporate profits. However, under the backdrop of weak market demand, commodity prices continue to decline, eventually leading to a continuous contraction of corporate profits.
According to historical circumstances, a meeting of the Central Politburo will be held in mid to late June. The current economic situation is a comprehensive problem of unbalanced industrial development, which of course requires a comprehensive solution framework. Relying solely on fiscal and monetary policies cannot alleviate the difficulties. When the balance sheets of enterprises and local governments are poor, they have little motivation to expand the liability section. This might be the minimum liability dilemma that Gu Chaoming spoke of. The terrible thing about the dilemma is that it cannot heal itself and will only become more and more dangerous. Expectations for the Central Politburo meeting in the second half of the month are full of challenges. The risk of going long in the ferrous sector is great, and whether the US dollar to RMB exchange rate will fall with the US dollar index is a very noteworthy indicator. This basically determines the general direction of the Chinese securities market.
We must pay close attention to the upcoming PMI.
The following are high-frequency data for this week:
*Translated by ChatGPT