This week, the market continued to fluctuate and adjust, which is not only a macro-level approach to fundamentals, but also a micro-level correction to the overheating of previous trading sentiment: First, the loose currency has not been cashed out, and the loose credit has been

Summary

This week, the market continued to fluctuate and adjust. This is not only a macro-level approach to fundamentals, but also a micro-level correction to the overheating of previous trading sentiment:

First, the loose currency has not been cashed out, and the loose credit has been increased. This week, MLF has a reduced parity resumable: 600 billion yuan will expire, 400 billion yuan will be renewed, and the interest rate will remain unchanged by 2.0%, which is in line with our expectations. At the same time, the loose credit continues to increase: the State Council’s new special re-loans will be added by 200 billion yuan, and the policy of delaying tax payments for small and medium-sized enterprises in the manufacturing industry will be extended for another 4 months.

Second, the economic data in August was released, confirming the marginal improvement of high-frequency reflection. Judging from the year-on-year trend, industrial output, consumption and infrastructure investment in August all rebounded compared with the previous month. Monthly data confirms the marginal improvement of high frequency before.

Third, the onshore RMB exchange rate fell below 7, and the internal and external equilibrium pressure increased. This week, core inflation in the United States remained high. Overseas markets expect the subsequent hiccup of interest rates in the Federal Reserve to be revised upward, U.S. Treasury yields rose sharply, and the US dollar strengthened. Affected by this, the onshore RMB fell below 7. The weakening of exchange rate has brought pressure on foreign capital outflows.

Fourth, trading sentiment cools down. Last week, micro trading showed some signs of overheating, and the micro index indicated that there was a risk of adjustment. This week, trading sentiment cooled down, and the index indicated that there is a high possibility of continuous fluctuation adjustment in the short term.

The market trend before mid-October may still be mainly fluctuating adjustments.

-October is the peak season for construction, and the policy effect may accelerate. After entered September, the meteorological conditions gradually improved, providing a more favorable environment for the peak season of construction. In addition, the recent continuous introduction of continuation policies has provided financial and policy support for accelerating the formation of physical workloads during the peak season.

"Preserve for the delivery of the building" has achieved results for completion. Although real estate sales, land auctions, new construction projects, etc. were still weak in August, the completed area began to show positive changes. With the support of various policies, the completion in August rebounded significantly year-on-year, and the year-on-year decline in the monthly completed area narrowed by 33.5 percentage points to -2.5% compared with July.

high-frequency synchronization indicators indicate that completion may still be accelerated. Observation of the excess returns of the "consumer building materials" stock index relative to the market can assist in observing the completion situation. In September, the excess returns of the decoration and building materials sector and the household goods sector increased compared with the entire market, reflecting that the completion is expected to accelerate.

is still necessary to further loosen the currency in the future, but there is a certain internal and external equilibrium pressure in the short term. Since the beginning of this year, the RMB exchange rate has depreciated in two rounds. The macro backgrounds faced by the two rounds of depreciation are similar: overseas rate hikes are expected to be radical and the US dollar are strong, domestic economic fundamentals are under pressure, and domestic monetary easing is increased.

Historically, breaking 7 does not mean that interest rate cuts cannot be cut in the future. For example, the two interest rate cuts in November 2019 and March 2019 both occurred at the exchange rate break of 7. However, when the exchange rate is in the stage of rapid release of pressure, interest rates will generally be adjusted more cautiously. When the pressure is released, the exchange rate is relatively stable and then interest rate adjustment is a more common choice.

In summary, due to the emergence of internal and external equilibrium pressure, it is not a comfortable window for wide currency. In addition, September and October are the traditional peak season for start-up, and the recent successive policies have provided financial support and guidance for the start of the project. It is expected that by mid-October, the market trend will still be dominated by volatile adjustments. Afterwards, there is a possibility of a second bottoming out for interest rates.

transaction review: continue to adjust. ① MLF volume reduction parity sequentially this week, and liquidity tightens marginally. has 10 billion reverse repurchase and 600 billion MLF due this week. central bank has carried out a total of 8 billion reverse repurchase and 400 billion MLF operations, and the operating interest rates are both the same as the previous period, and the net funds recovered by open market operations of 202 billion. As of Friday, the DR001 and DR007 varieties were weighted at 1.30% and 1.61%, respectively, up 13BP and 16BP respectively compared with the previous period. Next Tuesday is the LPR quotation day. ② short-term leads the decline. 10Y Treasury bond yield was 2.67%, up 4 BP from the previous period; 1Y Treasury bond yield was 1.83%, up 7 BP from the previous period; 10-1Y period spread narrowed to 84 BP. The duration of public funds has dropped for the first time since August, with the degree of institutional differences remaining, while the duration of other institutions has risen.③ Rural Commercial Bank is the main buying of government gold bonds, while urban commercial behavior mainly sells. ④ The positive and negative signals released by the top ten synchronous indicators of interest rates are half of the positive and negative signals, accounting for 5/10.

Risk warning: incremental policy, exchange rate fluctuation

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[Strategic thinking : When will be adjusted? ]

This week, the market continued its volatile adjustment trend. The reasons for the continued adjustment include:

First, the loose currency has not been cashed out, and the loose credit has been increased. MLF volume reduction parity sequel this week: maturity volume is 600 billion, sequel to 400 billion, and the operating interest rate remains unchanged by 2.0%, which is in line with our expectations. At the same time, the credit limit continues to increase. This week, the State Council added 200 billion yuan of special re-loans for renewal and transformation of equipment, supporting banks to issue medium- and long-term loans at an interest rate of no more than 3.2%. The central government subsidizes interest rates of 2.5% for the loan subject, and the actual loan cost of the entity is no more than 0.7%. The State Administration of Taxation and the Ministry of Finance have issued a policy of delaying tax payments for small and medium-sized enterprises in the manufacturing industry for another 4 months.

Second, the economic data in August was released, confirming the marginal improvement of high-frequency reflection. 's economic data for August this week was released. Judging from the year-on-year trend, industrial output, consumption and infrastructure investment all rebounded compared with the previous month. Industrial output was 4.2% year-on-year, up 0.4 percentage points from the previous month; social retail sales were 5.4% year-on-year, up 2.7 percentage points from the previous month; infrastructure investment was 10.4% year-on-year, up 0.8 percentage points from the previous month. The monthly economic data in August confirms the marginal improvement previously reflected at high frequency.

Third, the US dollar is strong, and the onshore RMB exchange rate fell below 7. This week, the US CPI maintained a high level. In particular, core inflation remained high, rising further to 6.3% year-on-year in August, with the previous value of 5.9%. Overseas markets have revised their expectations for the subsequent interest rate hike of the Federal Reserve, and raising interest rates by 75bp this month has become the mainstream expectation of overseas markets. Therefore, the yield on US Treasury bonds rose sharply, and the short-term 1-year US Treasury bonds once exceeded 4%. At the same time, the US dollar strengthened, and the index hit a new high in the past 20 years. Affected by this, the RMB exchange rate against the US dollar weakened together with other non-US currencies, and the onshore exchange rate fell below the important threshold of 7. The weakening of the exchange rate has brought pressure on foreign capital outflows. This week, overseas institutions estimated that they showed a net outflow trend, and the internal and external equilibrium pressure has increased.

Fourth, trading sentiment cools down. Last week, the microstructure showed some signs of overheating, and the microindex indicated the risk of adjustment. This week, trading sentiment began to turn and cooled down. Specifically, the duration fell from the year-on-year high, the median fell by 0.04 to 2.96 years, and the fund net sold ultra-long bonds. This week's "China Merchants-Bond Market Micro-Trading Observation Index" was 3, continuing to rise by 1 from last week. The possibility of the market microstructure pointing to a continuous fluctuation adjustment in the short term is high.

Therefore, the recent market fluctuation adjustment is not only a macro-level approach to fundamentals, but also a micro-level correction to the overheating of previous trading sentiment.

The trend before mid-October may still be mainly fluctuating adjustments.

-October peak season, policy effects may appear. The unusually high temperature and rainy weather from July to August this year has caused certain obstacles to the start of construction. After September, the meteorological conditions gradually improved, providing a more favorable environment for the traditional peak season of construction. In addition, the recent continuous introduction of continuous policies, including the addition of new policy-based development financial instruments, the addition of local special bond quotas, and the supporting measures for "guaranteeing and subsidizing buildings", etc., have provided financial and policy support for the subsequent formation of physical workload.

"Preserve for the delivery of the building" has achieved results for the completion. According to the real estate data in August, although real estate sales, land auctions, new construction, etc. are still weak, the completed area has begun to show positive changes. All localities have vigorously promoted the maintenance of housing and the Ministry of Housing and Urban-Rural Development, together with the Ministry of Finance, the People's Bank of China and other relevant departments, has introduced special measures to support cities in need to promote the construction and delivery of residential projects that have been sold and difficult to deliver after the deadline. With the support of various policies, the completion data in August showed a significant rebound, and the year-on-year decline in completed area that month narrowed by 33.5 percentage points from the previous month to -2.5%.

high-frequency synchronization indicators indicate that completion may still be accelerated. can assist in observing the completion situation through two sets of high-frequency data. One is to observe the excess returns of the "consumer building materials" stock index relative to the market, such as decoration building materials index, furniture supply index, etc. The second is to observe the performance of the prices of building materials such as cement. Since September, due to the impact of last year's high base, the price of building materials has not stabilized year-on-year, but the excess returns of the decoration building materials sector and the household goods sector have increased compared with the entire market, reflecting that the completion situation is still accelerating in September.

Next wide currency observation window may fall after mid-October.

Due to insufficient confidence in residents and the efforts to repair real estate, there is still a need to further loosen currency in the future. Although the unemployment rate in 8 fell, it was still higher than the seasonal level. Residents' confidence, consumption and willingness to buy a house have rebounded by limited results. The rebound in social retail sales in August was greatly affected by the low base in the same period last year. High-frequency data in September showed that the "Golden September" for real estate sales did not appear. From September 1 to 13, the average daily sales area of ​​commercial housing in 30 large and medium-sized cities was 274,000 square meters, a month-on-month decrease of 25.4% from the same period in August (367,000 square meters) and a decrease of 41.8% from September last year (470,000 square meters). The restoration of residents' confidence in real estate and willingness to buy a house needs further policy support, especially policies that directly stimulate demand such as purchase restrictions and interest rate cuts.

But in the short term, there is a certain internal and external equilibrium pressure. Since the beginning of this year, the RMB exchange rate has depreciated in two rounds. The macro backgrounds faced by the two rounds of depreciation are similar: overseas interest rate hike expectations are radical, the US dollar is strong, domestic economic fundamentals are under pressure, and domestic monetary easing is increased. The first round of depreciation occurred from April 19 to May 13, during which the RMB exchange rate depreciation was 6.0%. This round of depreciation started in mid-August and has a depreciation of 3.0% so far, with the onshore exchange rate breaking 7, and the pressure on internal and external equilibrium has increased.

Historically, breaking 7 does not mean that interest rate cuts cannot be cut in the future. On November 18, 2019, the 7-day reverse repurchase rate was lowered by 5bp, and the central price of RMB against the US dollar on the same day was 7.0; on March 30, 2020, the 7-day reverse repurchase rate was lowered by 20bp, and the central price of RMB against the US dollar on the same day was 7.04. Both rate cuts occurred around the exchange rate 7.

But usually when the exchange rate is in the rapid release of pressure, the interest rate will generally be adjusted more cautiously. It is more common to wait until the pressure is released and the exchange rate is in a relatively stable stage before adjusting domestic interest rates. Therefore, the next window to observe monetary easing may fall after mid-October. After the Fed rate hike is implemented in September, if overseas markets can ease from the current aggressive rate hike expectations, the RMB exchange rate will absorb overseas pressure and will be a more comfortable window for monetary policy action.

In summary, the market continues to fluctuate and adjust its trend this week, which is not only a macro-level approach to fundamentals, but also a correction of short-term overheating sentiment at the micro level. The reasons for the continued adjustment include: the loose currency has not been cashed out, and the loose credit has continued to increase; the economic data was released, confirming the marginal improvement reflected by high frequency before; under the strong US dollar, the onshore exchange rate fell below the 7 mark, foreign capital flowed out, and internal and external equilibrium pressure increased; trading sentiment cooled down, duration fell, and the micro index continued to be short. Due to the emergence of internal and external equilibrium pressure, it is not a comfortable window for wide currencies. In addition, September and October are the traditional peak season for start-up, and the recent successive policies have provided financial support and guidance for the start of the project. A positive change that can be seen is the improvement in real estate completion in August. It is expected that by mid-October, the market trend will still be dominated by volatile adjustments. Afterwards, there is a possibility of a second bottoming out for interest rates.

[Trading review : Continuing adjustment]

liquidity tightens marginally. This week (Tuesday to Thursday), a total of 10 billion 7-day reverse repurchase and 600 billion 1-year MLF expired. The central bank carried out 2 billion reverse repurchase operations every day and carried out 400 billion 1-year MLF operations on Thursday. The operating interest rates were the same as the previous period, and the net funds recovered by open market operations were 202 billion yuan. This week, the scale of government bond issuance payments was 309.4 billion yuan, including 255.6 billion yuan in Chinese bonds and 53.8 billion yuan in local bonds. After the MLF's slight shrinkage, the interest rate of funds rose significantly, and the overall liquidity tightened compared with the previous peripheral area. As of last Friday (September 16), the DR001 and DR007 varieties were weighted at 1.30% and 1.61%, respectively, up 13BP and 16BP respectively compared with the previous period.

Follow the LPR quotation next week. will have 2 billion reverse repurchase maturity every day from Tuesday to Friday, with the scale of government bond issuance payments of 246.7 billion, including 135.1 billion Chinese bonds, 111.7 billion local bonds, 264.3 billion government bonds due, and 17.6 billion net release of liquidity. Next Tuesday is the tax payment date and the LPR quotation date, and there will be 40 billion 1M treasury cash deposits on Wednesday to expire.

current coupons continue to be adjusted. From the perspective of the current bond yield, the yields for each term this week rose. Among them, the 1-year and 3-year varieties all rose by 7 BP, the 5-year varieties rose by 5 BP, the 7-year, 10-year and 15-year varieties all rose by 4 BP, the 20-year varieties rose by 2 BP, and the 30-year varieties rose by 1 BP. This week, the average transaction volume of interbank pledge repurchase reached a record high of 6.97 trillion yuan, and the average transaction volume of overnight weekly increased slightly from the previous period to 6.18 trillion yuan. Among them, the interbank pledge repurchase amount exceeded 7 trillion on Tuesday. As of Friday (September 16), the 10Y Treasury bond yield was 2.67%, up 4 BP from the previous period; the 1Y Treasury bond yield was 1.83%, up 7 BP from the previous period; the 10-1Y term spread narrowed from 88 BP to 84 BP.

Rural commercial acts to buy government bonds, while urban commercial acts to sell them. The yields of the current bonds for each term this week have risen. According to the details of individual bond transactions: ① New Treasury bonds: Rural Commercial Bank has bought net purchases for four consecutive weeks, and is still the main buying this week, with a net purchase of 19.506 billion yuan during the week; the joint-stock bank has continued to sell net sales since late February, and is still the main selling order this week, with a net sale of 11.773 billion yuan during the week. ② Treasury bonds: Rural and commercial acts mainly buy orders this week, with net purchases rising to 20.445 billion yuan during the week; large commercial banks and policy banks turned into net sell orders this week, with net selling of 8.825 billion yuan during the week. ③ New government bond bonds: Rural Commercial Bank has continued to buy net since mid-July, and is still the main buying this week, with a net buying of 6.595 billion yuan during the week; urban commercial banks have continued to sell net selling since early January, and the net selling scale last week fell slightly to 6.589 billion yuan, which is still the main selling order. ④ Government and gold bonds: Rural and commercial behavior mainly bought this week, with net purchases of 53.491 billion yuan during the week; urban commercial banks have recently sold net sales, with the main selling orders for four consecutive weeks, with net sale of 43.886 billion yuan during the week.

Duration has dropped for the first time since , and the degree of institutional differences remains the same. From September 13 to September 16, the duration of public funds fell by 0.04 to 2.96, the first decline since August. The degree of institutional differences remained the same, and the investment promotion duration divergence index remained the same at 0.45. Most of the duration of other institutions rose, among which the duration of securities companies rose by 0.39 to 4.68; the duration of insurance rose by 0.02 to 11.30; the duration of banking rose by 0.35 to 5.42; the duration of trusts rose by 0.14 to 3.04; and the duration of overseas institutions fell by 0.09 to 3.88. In the interest rate synchronization indicator of

, the positive and negative are half ( /10). This week (September 13 to September 18), among the signals released by the top ten synchronous indicators of interest rates, "good" and "negative" each account for 5/10. The changes over last week include: the year-on-year crude steel output of key enterprises (6MMA), land transfer income year-on-year, and copper-gold ratio sending "negative" signals, and iron ore port inventory sending "negative" signals.

Specifically: ① Excavator sales (6MMA) were -21.9%, higher than the previous value -24.1%, and the attribute is "bad"; ② Cement price was -14.8% year-on-year, lower than the previous value -1.4%, and the attribute is "bad"; ③ Crude steel output of key enterprises (6MMA) was -2.1%, higher than the previous value -4.8%, and the attribute is "bad"; ④ Land transfer revenue was -28.5% year-on-year, higher than the previous value -31.7%, and the attribute is "bad"; ⑤ Iron ore port inventory was 1.38 100 million tons, lower than the previous value of 138.2 million tons, the attribute is "good"; ⑥ PMI was -5.3% year-on-year, lower than the previous value of -4.6%, the attribute is "good"; ⑦ Credit cycle is 8.1%, lower than the previous value of 8.2%, the attribute is "negative"; ⑧ Note financing is 12.4 trillion, higher than the previous value of 12.3 trillion, the attribute is "negative"; ⑨ US dollar index is 109.6, higher than the previous value of 107.1, the attribute is "negative"; ⑩ Copper-gold ratio is 20.4, higher than the previous value of 20.3, the attribute is "negative".