Core viewpoints
Since March, copper, oil, gold and silver prices have risen, followed by chemicals, small metals and agricultural products. Recently, the shipping index has soared. Responding to the "price rise tide", the equity market's pro cyclical performance was dominant.
The real picture of the economy behind this round of price rise: At present, overseas is still in a "quasi recession" stage, and China's debt cycle has not yet ushered in an inflection point.
The clues of domestic price rise mainly fall on the reflexivity of low inflation expectations (dividends, real estate policy games, etc.); The clue of overseas price rise is mainly due to the slow downward trend of demand plus supply constraints (supply constraint narrative is the key to price rise). Because of this, domestic debt, black, PPI and CPI trade inversely with inflation.
Can a round of inflation trading be started in the future and when? One is to see when the overseas credit cycle will expand; Second, observe that domestic policies can promote supply clearing and the debt cycle bottoms out.
At present, the capital market has not yet ushered in a round of "inflation trading" under the classic paradigm, and most of the stocks, bonds and bulk commodities are still marginal pricing.
Recently, the prices of copper, silver and small metals have reached new highs, and the shipping index has soared. In addition, the A-share cycle has performed well since the beginning of the year. Recently, Hong Kong stocks have seen a staged rebound. The market seems to have a tendency to warm up the "inflation trade". Has the "inflation trade" begun?
It is related to inflation transactions. Since the beginning of the year, the asset signals of stocks, bonds and bulk commodities are not consistent.
To sum up the price increases in different fields, we find that the price increases are mainly concentrated in the pro cyclical equity sector and the bulk of overseas pricing.
On the contrary, the core inflation and black commodities that really express the expansion of domestic demand are relatively weak. Similarly, we have failed to find evidence of price increases in the equity consumption sector and the construction industry chain.
More importantly, both China and the United States have shown the direction of demand softening.
The disordered asset signal indicates that the market is playing a part of "inflation trade" in the low inflation level, which is very contrary to the conventional experience. Is this a measure of the global economy's transition from recovery to overheating, that is, whether global economic demand has ushered in a cyclical inflection point?
Through the micro mechanism, the domestic clues of price rising transactions and the underlying macro drivers are the extension of domestic low inflation expectations.
First, the dividend strategy is dominant in the context of low inflation.
Article 2 Extension: Local governments have reduced leverage to pry up the expectation of public utilities' price rise.
Third, the low level of social finance stimulates the policy game of domestic demand.
The overseas clues of price rising transactions are essentially supply narrative under the cover of secondary inflation.
At present, a new round of overseas credit expansion cycle has not yet started. At this stage, the underlying transaction logic of secondary inflation is essentially that supply constraints drive price increases when demand is stable.
In the absence of sustained economic growth and a clear trading line in the market, the market chooses game marginal pricing. This is why the demand is still stable in the short term, and the future demand cannot be falsified for the time being. At the same time, the supply of related assets with constrained narrative has seen the price rise sharply since the beginning of the year. For example, copper, such as small metals, such as ships, such as shipping.
The clear conclusion is that the real economic pattern behind the structural rise in asset prices is that global economic demand is still in a "quasi recession" stage. The market is waiting for a round of global recovery, but it has not yet started.
The reality and expectation of low inflation at home, the slow downward trend of overseas inflation and the expectation of secondary inflation, superimposed with geopolitical games and some supply constraints, and finally the capital market in the global "quasi recession" stage, instead, deduced a round of counter intuitive "inflation trade". More appropriately, the current market has experienced a round of atypical price increase transactions.
The abnormal deviation between the current round of asset prices and the economic cycle is essentially due to the changes in the driving factors behind the global and domestic economic cycles (price cycles), which are beyond the historical cognitive laws.
First, China's real estate is currently experiencing the transition from investment goods to consumer goods, and the logic of balance sheet suppressing core CPI is different from the past.
Second, the US fiscal expansion continued to exceed expectations, especially the massive transfer payments to the residential sector, which strengthened the resilience of this round of consumer spending.
Can the inflation transaction be opened in the future and when? We believe that the key is to see two clues at home and abroad: when the expansion of the global credit cycle of overseas targeting will start, and whether the domestic debt cycle of China targeting will reach the bottom and recover. At this stage, the marginal change of the long-term main lines of the above two macro transactions is limited, which means that the opening of inflation transactions still needs time to wait.
First of all, the probability of monetary easing by the Federal Reserve in the second quarter is low. The tight dollar liquidity may flatten the global manufacturing cycle, and the short-term global manufacturing landscape may face downward revision.
Secondly, before the rebalancing of the balance sheet of the real estate industry, the domestic pricing anchor, the domestic macro environment also does not have the necessary conditions to turn to inflation transactions. In the future, we need to pay close attention to how the government will solve the problem of ensuring the delivery of buildings and reshaping the industry supply in the process of real estate acquisition and storage.
In the near future, the capital market cannot usher in a round of typical "inflation transactions", and stocks, bonds and bulk commodities are still playing games around marginal pricing.
In terms of stock market, long-term growth uncertainty still exists. We can focus on the extension of domestic low inflation and the direction of overseas supply constraints to find pricing opportunities.
First, the high dividend plate. Low inflation expectations in China continue, so stabilizing cash dividends is still an important investment theme.
Second, game domestic demand policy. The sharp contrast between economic fundamentals and policies since April is the main clue to the fluctuation of the equity market. Under similar logic, the disturbance of fundamental data in the second quarter to market sentiment may continue to fall back, and domestic demand transactions will return to the policy game in stages.
Third, the direction of local financial resources optimization. Based on the systematic decline of land transfer fees and the optimization of local government financial resources, the logic of the construction of the tourism economic circle may still be smooth.
Fourth, play the game of overseas supply constraints. The plates related to export and sea going with supply side constraints have a stronger margin of safety in the short term and maintain relative returns in stages.
In the bond market, the underlying logic of low inflation in China has not been destroyed. The performance of bond assets is still relatively dominant during the year. In terms of rhythm, we still need to pay attention to the disturbance of bond supply to the inter-bank liquidity environment.
In terms of commodities, a new round of global credit expansion cycle has not yet begun, and the performance of subsequent commodities will continue to differentiate.
Gold: High platform tailwind period. Based on the window period of this round of interest rate reduction, the grand narrative of gold will not be broken for a period of time. Before the Federal Reserve's substantive easing, gold may still perform relatively well.
Copper: The safety margin of precious metals may be higher than that of non-ferrous metals, which also means that the copper gold ratio may face systematic downward revision. The certainty of copper price performance still needs to wait for the verification of demand recovery. The key to whether the narrative of supply and demand gap will be falsified is still the cooperation of the demand side.
Crude oil: From the perspective of cycle, the demand for crude oil has not yet entered a tailwind period, and the momentum of the continuous rise of oil prices is questionable.
In terms of exchange rate, the trend of RMB exchange rate during the year may be weak first and then strong.
First, before and at the beginning of the interest rate cut by the Federal Reserve, the dollar index may be strong first and then weak.
Second, the core line of domestic fundamentals is still real estate. Until the supply of the real estate industry is effectively cleared, the RMB is still constrained by the domestic "weak reality" in the short term.
Risk warning. The power of consumption recovery is insufficient, the improvement of real estate cycle is limited, the tightening monetary policy in Europe and the United States exceeds expectations, and geopolitical conflicts disturb.
