This week, the U.S. released its July economic data, with CPI falling from 3.0% to 2.9% and retail sales rising by 1.0% month-on-month, both surpassing market expectations. Following the release of these figures, global stock markets quickly rebounded, recession fears eased, and global bond yields ticked up. Our prediction from last week that the U.S. CPI would be a more crucial trade than bonds and commodities has proven accurate. With one more employment and CPI report due before the anticipated rate cut in September, the July figures of 2.9% CPI and 4.3% unemployment suggest that August’s data might move towards a more balanced risk outlook. Data indicates a decline in mortgage rates, with a surge in refinancing related to real estate, driving property prices higher. Rising mortgage rates have been a characteristic of the U.S. economy since the inflation spike, a trend that has persisted for two years. The market has been concerned that continued stagnation in refinancing could lead to a shortage in real estate supply, preventing price declines. However, as long-term inflation expectations stabilize, refinancing activity related to real estate is picking up again, potentially leading to a gradual rebalancing of real estate prices in the future. This development is generally positive news for the broader capital markets.
Additionally, the retail data shows that auto sales have begun to recover. The strong performance in both the real estate and automotive sectors in July could further bolster stock prices if this trend continues into August. The upcoming Jackson Hole Global Central Bank Conference will feature a keynote speech by Jerome Powell, and according to reports, he will share his views on the economic outlook. Powell has historically refrained from commenting on the future economy in his press conferences, and the global central bank meeting in August is expected to be a significant event leading up to the September rate cut. Powell may break from tradition by providing a policy framework outlining the Fed’s future rate cut path, which could reduce market uncertainty, offering a favorable trading window.
Japan’s Q2 GDP grew by 0.8% quarter-on-quarter, easing concerns about the Japanese economy. Data also shows a robust labor market, and Prime Minister Fumio Kishida’s sudden resignation seems to have had little impact on financial markets. The market’s confidence in the stability of Japanese politics remains strong. While some media outlets have speculated on the potential impact of Kishida’s resignation on monetary policy, this uncertainty appears to have had minimal effect on market sentiment, as the Nikkei has continued its upward trajectory. The upcoming appearance of Bank of Japan Governor Kazuo Ueda at cabinet meetings and hearings will be an event to watch. The focus of this hearing is likely to be on financial stability, with Ueda expected to explain the impact of monetary policy shifts on the broader financial market. His remarks will be worth close examination.
Our previous analysis framework suggested that the improvement in Japan’s economic data was primarily driven by the recovery in Japan’s export trade. If global economic uncertainty is Japan’s main uncertainty, then the current trends in electronic and automotive trade show no signs of decline, indicating that the Nikkei still offers good profit opportunities.
This week, China released its key July production and consumption data, with consumption growing by 2.7% year-on-year, showing slight improvement. Considering last year’s growth rate of 2.5%, the two-year average hovers around 2.6%, still indicating a weak position with limited marginal improvement. Correspondingly, July’s M1 data was also weak, with residential real estate loan balances showing negative growth. This negative growth trend is expected to accelerate, exerting significant downward pressure on social financing. The accelerated decline in residential real estate loans and negative growth in auto consumption both highlight the insufficient effective demand among residents.
Currently, the overall economic situation remains complex. The A-share market has fallen below 2,900 points, and the market seems to have accepted this pricing. Trading volumes continue to languish, with intraday volatility gradually decreasing, indicating a lack of market vitality. Meanwhile, despite multiple rounds of central bank interventions, the bond market continues to exhibit a one-sided trend. Each time the central bank intervenes to signal that long-term rates are too low and increases the supply of long-term bonds, government bond futures continue to rise after a brief two- to three-day pullback. This short-term correction has not pressured bond market bulls, and leverage levels remain high. The central bank has expressed concern in public statements and monetary policy reports about the high leverage in the government bond futures market, noting that some bond investment products offer yields significantly higher than the gains in government bond futures—a clear indication of excessive leverage in the market. However, despite the bond market’s pullback, capital has not flowed into the stock market but has instead concentrated in dividend-bearing risk assets like banks. Bank stock dividend yields continue to decline, and this trend is likely to persist.
From a policy perspective, China’s issues may not lie solely in monetary and fiscal policy; there are many factors worth considering. Recently, media reports have surfaced regarding the acquisition of existing homes in first- and second-tier cities. The acquisition schemes presented are still relatively stringent, which is understandable given state capital’s aversion to extreme risk-return scenarios. Three months have passed since the introduction of the 5/17 New Deal’s secured refinancing tool, and while some action plans have been gradually implemented, the pace remains slow. China’s economy faces various challenges, but from a first-principle perspective, the market is smarter than any individual participant. We trust that everything is reflected in the price.