On April 6, the Prime Minister presided over an executive meeting of the State Council and decided to implement phased deferral of pension payments for extremely poor industriesInsurancefee policy, increase unemploymentInsuranceSupport stable jobs and training efforts; deploy and use in a timely mannercurrencyPolicy tools to more effectively support the development of the real economy. This meeting released six policy signals:
First, the economic judgment is more cautious, and frankly “beyond expectations”
Several key words in the economic judgment of this meeting are: “uncertainty exceeds expectations”, “increased difficulties for market entities”, “high attention and alertness to new challenges”, and the overall tone is more cautious. The triple pressure is still there, but the new challenge is: under the external geopolitical shocks such as the Russian-Ukrainian conflict, global commodities have soared, the cost pressure of domestic enterprises has increased, and the pace of interest rate hikes by the Federal Reserve may be accelerated. The domestic and domestic epidemic broke out locally, and the impact was second only to 2020, and it was transmitted to consumption, investment, supply chain, etc., making it much more difficult to achieve the growth target throughout the year.
Second, clarify the connotation of the economic reasonable range and release policy signals
The meeting clearly stated that keeping the economy operating within a reasonable range is mainly due to the basic stability of employment and prices.The unemployment rate has shown signs of rising from January to February. It is expected to become more obvious in March under the impact of the epidemic, and employment pressure will be further transmitted to consumption and other fields.
According to the spirit of the Central Economic Work Conference and the “Government Work Report” measures, some measures can be implemented in advance.Which policies may be implemented earlier? We believe that the release of the remaining quota of local special bonds, the timely start of water conservancy projects and other projects, the expansion of pilot projects such as urban renewal, and the relaxation of real estate policies under the framework of city-specific policies are all possible. In addition, paying attention to the tax rebates will provide 1.5 trillion cash flow for enterprises.It was originally planned that the stock tax rebates for small and micro enterprises will be concentrated in the second quarter of this year. Manufacturing, scientific research and technical services, electricitygas, software and information technology services, ecological environmental protection, transportation and other industries, the tax rebates for large and medium-sized enterprises will be in the second half of the year, and the incremental tax rebates will be implemented from April. Stock tax rebates may be implemented earlier. The meeting also proposed that all departments should study policy plans in response to changes in the situation, and promptly introduce measures that are conducive to stabilizing market expectations.
Third, strengthen the policy base, the core is the main body bailout and employment bottom line
The meeting pointed out that some market players are currently severely impacted, and it is necessary to increase protections such as bailouts and employment. We believe that this is the focus of future policies. To protect the main body of the market is to protect employment and the economy, which is similar to the impact of the epidemic in 2020. Market entities are like “fish”. It is meaningful to release water when there are fish, so that they can quickly recover after the epidemic. This is also the key to our understanding of the follow-up policy. In short, following the release of market sentiment at the 316 Financial Committee meeting, the measures of this meeting further strengthened the bottom line of policy expectations.
Fourth, RRR cuts and interest rate cuts can be gamed, but not certain
Since 2019, each RRR reduction has been clearly “announced” by the Prime Minister at the regular meeting of the country or other occasions. The formulation of monetary policy this time is to “use a variety of monetary policy tools flexibly in a timely manner to better play the dual functions of aggregate and structure, and increase support for the real economy.” Multiple monetary policy tools may mean not limited to RRR cuts and interest rate cuts, as well as MLF, re-lending, small and micro loan support tools,bankcapital replenishment, etc.
The core problem facing the current economy is the coexistence of three pressures, such as the risk of a balance sheet recession, and short-term shocks such as the epidemic and the conflict between Russia and Ukraine. The best solution is to stabilize the old economy and add to the new economy. Let the market players survive first, and then talk about a good life, so that the green hills will not worry about burning wood. In this case, fiscal policy and financial support are more direct, and structural policy can better take into account the short-term and long-term, structure and aggregate.
Under the current base money supply mechanism, there will be a liquidity (excessive reserve) gap every six months, and MLF needs to be supplemented or replaced by means such as RRR cuts. Therefore, RRR cuts are still necessary, but overall it depends onbankThe funding gap of the system is a possibility in the second quarter, but it is not urgent. It is also necessary to cut interest rates, but the Fed is in the channel of interest rate hikes. The 2-5-year Sino-US interest rate gap has inverted, and the space is already very limited. Therefore, we still judge that if the economic growth rate is significantly lower than the target, the RRR and interest rate cuts can be gamed. April is a sensitive time, but it is not yet certain. The probability of RRR cuts seems to be slightly higher than that of OMO and MLF. If there is no interest rate cut in this month, the probability of the Fed raising interest rates in May-July will be lower.
Fifth, what are the structural tools?
The first is to increase re-loans to support agriculture and small businesses.This point has been mentioned at the regular meeting of the central bank in the first quarter. Supporting agriculture and small businesses directly refers to the weakest link of the epidemic, and the follow-up quota is expected to increase.
The second is to study and adopt financial support for consumption and effective investment measures to improve the level of financial services for new citizens.The significance of “new citizens” to stabilizing growth lies in both consumption and investment. First, it provides consumer financial support to tap consumption potential. The second is related to the support for the supply of affordable housing and the relaxation of loan conditions for new citizens to purchase houses.The core is to solve the problem of financing and credit and lower the threshold for credit, butbankWillingness to lend is questionable.
The third is to set up two special re-loans for technological innovation and inclusive old-age care.These two items are innovative tools, and the specific details need to be further clarified. However, referring to the previous operational experience, it is speculated that it is still a direct mechanism of “lending first and then borrowing”, and the central bank supports the loan principal.
The above-mentioned structural policies will also release the base currency, which may reduce the urgency of RRR cuts if implemented in a timely manner.
Sixth, re-exporting financial profit-making entities and special bonds to replenish capital
This meeting once again put forward “reasonable transfer of profits by financial institutions to the real economy”, but emphasized “marketization and rule of law”. We believe that it is more about the central bank’s investment of structural tools → the reduction of bank capital costs → the reduction of physical loan costs. Bank stocks have performed better recently, and one of the implied expectations is that the probability of lowering the reserve ratio and interest rates is reduced, and the pressure on NIM is weakened. But Randy’s concerns could constrain its space.
In addition, the meeting also proposed to “do a good job in replenishing the capital of small and medium-sized banks with special government bonds, strengthen thecreditability”.At the 2020 National Standing Committee, a special debt quota of 200 billion yuan was allocated to supplement the capital of small and medium-sized banks. This year, the growth rate of social financing and credit is likely to pick up, and the capital consumption of banks may increase. Since the end of last year, many banks have come together to issue capital supplementary instruments. Special bonds can help ease the capital constraints on credit issuance, thereby unblocking a blockage in financial support entities.
In short, in the bond market, we have judged in the past two or three weeks that we can participate in the policy game slightly. The economic data in March was not good. The epidemic, the downturn in Russia and Ukraine, and the real estate industry had an impact on the economy, and monetary policy entered a game period. However, the interest rate cut faces constraints such as the Fed raising interest rates. The market has already reflected certain interest rate cut expectations. The Sino-US interest rate gap is partially inverted. Credit may not be bad in March, and the game space is limited. Even if the RRR cut and interest rate cut are implemented, the market will most likely treat it as the end of relaxation, and may even “buy expectations and sell reality”. Therefore, the certainty and space (value game rate) of this policy game are not as good as from the end of last year to January. In this case, we recently suggested that investors participate in the game in a small amount, and close it when it is good. The price performance is slightly better in 3-5 years, and a certain leverage can be maintained. In the stock market, the bottom of the policy has been confirmed again. Waiting for the bottom of the market, the style is slightly biased towards value. The products that benefit from the policy are still short-term hotspots under the epidemic. The space for bank stocks is subject to the concerns of profit-making entities. .
risk warning
1) Overseas inflation exceeded expectations:Higher-than-expected overseas inflation may lead to faster pace of Fed rate hikes and balance sheet reductions.
2)Real estate policy is more effective than expectedExpect:The loosening of the real estate policy may be transmitted to the sales side and the investment side, thereby reducing the pressure on macroeconomic policies.
(Article Source:Huatai Securitiesgraduate School)
