Author: Guotai Junan Securities Research Institute Tan Guohua Henkel
Inflation trading has come back to become the core trading strategy of the global market in early 18th. The trend of moderate inflationary inflation has been confirmed. It is an important indicator that needs continuous attention in the next few years, but short-term investors need not worry too much about inflation risks. The downward trend of domestic long-term interest rates is still the direction of the least resistance. We continue to be optimistic about the follow-up market of the bond market. It is recommended that investors increase the portfolio duration by “dividingâ€.
Inflation trading has come back to become the core trading strategy of the global market in early 18, and it is also one of the important reasons for the decline in the bond market in January.
After the continuous decline of CPI in the past few years, since the second half of 2017, a series of changes in macro factors at home and abroad have stimulated inflation expectations and CPI upside risks:
Domestic factors: 1) Due to the supply-side reform, the prices of domestic raw materials such as black and non-ferrous materials have risen sharply in 17 years. The rising cost has also driven up the price of consumer goods such as home appliances, automobiles, liquor, beer and dairy products in the middle and lower reaches; 2) the prosperity of the domestic real estate market In particular, the monetization of the third and fourth sheds has been fully blossomed, and the rise in housing prices has brought about a significant increase in the willingness of residents to stimulate consumption; 3) stricter environmental standards, higher land and rental costs, and higher costs; 4) 17 years of CPI food items are generally depressed No accidents will resume positive growth in 18 years.
Overseas factors: 1) Since the second half of 17th, crude oil prices have continued to rise, and oil has once exceeded 70 US dollars. Crude oil is the mother of inflation, which has triggered inflation to accelerate expectations. 2) Global major economic growth and inflation data continue to improve, especially In January, the US CPI and core CPI exceeded expectations, and economic growth accelerated the core inflation into an upward trend, resulting in a 10-year US bond interest rate soaring more than 50bp at the beginning of the year; 3) the expansionary fiscal policy impact of Trump tax reduction and infrastructure, bringing Potential deficits and inflation risks have risen.
However, since the beginning of February, overseas oil prices have fluctuated and fell. Domestic CPI and Eurozone inflation data have weakened in January. The inflationary trading has warmed up and the global bond market has eased. The global asset price volatility has intensified before the Spring Festival.
The rapid decline in the bond market in January may imply a transitional concern about inflation risks. Although domestic CPI may jump above 2.5% due to the Spring Festival misalignment and base effect in February and March , the inflation risk is high from the perspective of more than half a year. After the low, it is difficult to become a key variable to curb monetary policy and bond market performance at this stage:
1) January CPI and PP I were slightly lower than expected. More importantly, the core CPI, CPI non-food items and CPI services that hit a record high in the fourth quarter of 17 years began to turn down, and the core inflation accelerated the momentum. With reversal. In 2017, the CPI of service items and non-food items rose much higher than the historical level and pushed up the core CPI. This situation will not be repeated in 18 years.
2) The core CPI in 2017 has risen to a new high in recent years. Among them, it is very important that the price of medical care services under the CPI service has risen sharply. In particular, the 15-year medical reform has been based on “improving medical service charges and controlling drug chargesâ€. The price of medical services in public hospitals was adjusted, and the medical service fees were increased. The CPI of medical services increased by nearly 8% in 17 years, and the contribution rate to CPI ranked first among various projects. However, as the low base effect of the medical reform has subsided, this price increase is not sustainable. Since January 18, this sub-item CPI has entered the downward channel.
3) In the history, each round of CPI rose by 3%, which is bound to be accompanied by a 3% increase in food item CPI. Pig price is the key value affecting CPI. However, since February, the price of live pigs has experienced a sharp decline, from the high of 15.2 yuan / kg in January to below 13.4 yuan / kg, and has not stopped falling. Although the statistics of pigs and sows published by the Bureau of Statistics continued to decline for 53 consecutive months, the time and extent of contraction of the supply end have been long enough, and the pig cycle seems to be at the bottom of the brewing price rebound pressure, but the current signs are not too good. obvious.
Furthermore, from other micro-indicators, the data on the pork supply end may not be as pessimistic as the stocks. On the one hand, the pig-to-food ratio remains relatively high. Above the historical average, farmers’ profits are still relatively impressive, and there is no periodic bottom amount. The price indicators have all fallen to the characteristics of freezing point;
On the other hand, the price and sales volume of pig feed is still growing rapidly. In the past 17 years, the sales volume of Dabei agricultural feed has reached 16.3%, which is more than 10% higher than that in 16 years. This also means that the production capacity of pigs does not fall as much as the stocks. violent. There are indications that the 18-year hog price may not be able to rise sharply, and the probability of sharply pushing up the CPI of food items is small. If the price of food such as pig price rises moderately, it is difficult for the overall CPI to overheat.
4) As the leading indicators of M1, M2 and general credit growth rate decline, the macro level also does not support the CPI year-on-year sharp rebound. M2 and general credit growth expansion is often the leading indicator of a sharp rise in CPI, but in January M2 and social growth rate were only 8.6% and 11.3%, almost all at historically low values. From a macro perspective, it is difficult to stimulate overheating of aggregate demand and trigger a continuous rise in prices on a broad level. Therefore, the CPI in February and March may not be an all-time high, although the short-term may bring certain emotional pressure on the policy and the market, but in the context of a tight currency, the CPI does not have the risk of continuous upward movement.
5) Recently, overseas concerns about the acceleration of core inflation and the pace of the central bank to accelerate interest rate hike have eased, and the bond market interest rate has risen sharply and the adjustment pressure has been slightly repaired. Despite the US economy and inflation performance, Europe's January CPI was lower than expected. In an environment where unemployment is still high and labor wages are rising slowly, CPI expectations are still fragile. Global inflation is still in a relatively moderate level as a whole, and financial market pricing may experience ups and downs.
Inflation needs constant attention, but there is no need to worry too much.
We predict that the CPI in February 2018 will be higher than 2.5% due to the misplacement of the Spring Festival (17th Spring Festival, January 28th, 18th Spring Festival, February 16th) and the low base effect, and will remain high at around 2.5% in March. However, the inflation trend in the first half of the year will be a deterministic trend before the high and low, and the CPI in February-March is the highest for the whole year. In February, the PPI will further decline from 4.3% to less than 4% under the influence of the base.
As mentioned in the 3rd quarter of the monetary policy implementation report in the third quarter of the year, “Global high growth, lower inflation and normalization of monetary policy in major developed economiesâ€: “Economic growth is picking up, the labor market is performing well, and the major economies are gradually The initiation of monetary policy normalization has created a suitable environment, but the continued low inflation level has left policy makers with some room for loose monetary policy.†At this stage, financial markets may be experiencing “high growth + lower inflation†gold. era.
Although we have hinted at “rebuilding inflation expectations†in the early November 17 report, now, when the inflation expectations in January triggered a sharp drop in stocks, we would like to remind that the trend of moderate inflation in the inflation center has been determined. It is an important indicator that needs constant attention in the next few years, but short-term investors need not worry too much about inflation risks.
Stocks should be optimistic in the medium and long term, and the short-term domestic bond market has already shown a sharp rebound. Just as we have emphasized in the past few weeks, the domestic long-term interest rate down is still the least resistance direction. We continue to maintain the bond market. Optimistic, it is recommended that investors increase their portfolio duration by “dividingâ€.
Source: Bond market talk
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