Domestically: Intense Liquidity Withdrawal
Since the beginning of the year, both the Hang Seng and A-shares have retreated in the four days of trading, with A-shares once again testing the 2900 support level and Hang Seng reaching around 16500. During this overall pullback, domestic liquidity has seen significant withdrawal by the central bank, and global liquidity related to Hang Seng has also been disturbed somewhat due to a slight rise in the U.S. dollar index. Beyond liquidity, several key data factors are noteworthy. In China, the December PMI was released, with manufacturing at 49.0%, continuing its decline. However, the non-manufacturing PMI remains in the expansion zone, aligning well with the general public’s high enthusiasm for travel. Overall, residents are very sensitive to prices, continuing to consume but with a keen pursuit of value for money. The vibrancy in the Northeast is closely related to the affordability of prices in that region.
Looking back at the asset price performance in 2023, it’s observed that poor PMI data typically leads to weak overall stock performance. The December PMI might indicate that other related data will not be particularly optimistic. Moreover, high-frequency financial data and the yield on large deposits saw a rapid decline after a surge in December, indicating weaker demand for funds. Financial data to be released next week might also be underwhelming. Entering January, local two sessions will begin in various regions, which, although not as decisive as the central two sessions, will still likely bring some positive news. Whether the A-shares can maintain the 2900 support level remains to be seen. In December 2023, there were signs of stabilization in high-frequency real estate data. We await December’s data, as real estate figures are crucial and could bolster confidence in the economy if there’s a stabilization in month-on-month real estate prices.
United States: Unclear Path on Interest Rate Cuts
Before Christmas, external markets experienced nine consecutive days of gains, with a rapid retreat in the U.S. dollar index, largely influenced by the optimistic tone of the Federal Reserve’s interest rate meeting. However, liquidity retracted significantly in the five trading days after Christmas, with the U.S. dollar index rebounding and global stock markets, commodity prices, and bond yields falling. This liquidity pullback is phase-specific, as economies inherently pulse forward. But this might be a short-term phenomenon and unlikely to alter the general downtrend of the U.S. dollar index. Properly timing these liquidity rhythms could yield above-average global market returns.
Three other data points are worth attention: the upcoming U.S. December CPI data, with expectations it might remain flat compared to November. Considering the rebound in inflation data from Germany and France, U.S. inflation in December might not be ideal, especially as Brent crude oil shows strong stability after reaching around $70 per barrel. Various signs suggest the U.S. CPI might remain resilient in the first quarter, potentially leading to volatility in external markets. Timely exits are necessary after securing certain returns. The second point is U.S. Q4 GDP data. The Atlanta Federal Reserve’s GDPNow indicates a 2-2.3% range, a significant pullback from the 4.9% growth in Q3, making it highly tradeable. If it exceeds 2%, a bullish outlook is justified. The third point is U.S. employment data. Rising unemployment rates and declines in job vacancies and resignation rates suggest a softening labor market, which could favor global liquidity expansion. This indicates the U.S. might avoid stagflation, and the quicker the labor market slows, the lower the resilience index for CPI, increasing the market bets on U.S. interest rate cuts. Even if CPI hovers around 3%, global stock markets might continue to rise rapidly.
Beyond the data, the Federal Reserve’s meeting minutes were released, and discussions focused on the absence of interest rate cuts, interpreted as hawkish. However, considering Powell’s proactive discussion on rate cuts in the press conference, the minutes align with the hawkish stance post-conference, representing a verbal control strategy to prevent too rapid a relaxation of the financial environment. The release of these minutes hasn’t changed the overall market pattern.
