Tianfeng Macro: Expects to calm down in March when liquidity tightens slightly

Tianfeng Macro: Expects to calm down in March when liquidity tightens slightly

Source: Song Xuetao’s original title “March Liquidity Preview: Need to be calm when mad (Tianfeng Macro Song Xuetao)”, the rise of A shares since the beginning of the rainbow, can benefit from policy-driven risk compensation and repair, but also received overseas fundsContinued inflows and continued loose support from domestic funds.

With fundamentals still in a semi-vacuum period, policy and funding are key factors in determining market sustainability.

From the perspective of market sustainability, we believe that we should pay reasonable attention to the liquidity situation of the domestic currency market for three months.

In March, liquidity is expected to tighten slightly from January to February, returning to the level of the fourth quarter of 2018, and gradually improving.

  First, why should we pay attention to the funding situation in March?

  Since the beginning of the year, A shares have risen like a rainbow.

The improvement in market performance is due to the supplementary repair of risks promoted by policies-intensive hedging policies have been implemented, structural reforms have been introduced, and Sino-U.S. Trade negotiations have eased significantly; and they have also suffered from the continuous transfer of overseas funds and the continued easing of domestic fundssupport.
With fundamentals (macro data and company financial reports) still in a semi-vacuum period, policy and funding are key factors that determine market sustainability.

  For the time being, the policy side is temporarily worry-free under the care of the two sessions and the better Sino-U.S. Negotiations, while the capital side has seen a significant rise in capital gains in the last few trading days of February: the pledged repo rate between banks and deposits (DR007) and Interbank Offered Rate (SHIBOR 1W) have increased by 42bp / 61bp in the last 9 trading days.

Therefore, from the perspective of market sustainability, although there is no strong correlation between the money market interest rate and the stock market, the stock market’s rise or fall often occurs when the money market interest rate is too high or too low, so it is feasible toThe liquidity situation of the domestic currency market remained rationally watched.
Figure 1: Continuous liquidity tightening since mid-February (%) Source: WIND, Tianfeng Securities Research Institute II. How big is the liquidity gap in March?

  As for cash withdrawals, it is estimated that 300 billion yuan will be invested in liquidity.

In March, the effect of the Spring Festival gradually subsided, and the scale of cash to deposit conversion was significantly weakened compared with January to February.

With reference to historical conditions and the time of the Spring Festival this year, M0 is expected to decrease by about 300 billion in March from the previous month.

  In terms of financial funding, it is estimated that the liquidity will be 700-850 billion.

March is the month of fiscal investment.

In the first quarter, the demand for steady economic growth was relatively reduced. In November 2018, the Ministry of Finance issued a number of notices on the transfer of central and local payments in advance, gradually opening up the year to accelerate the progress of fiscal expenditure.

Therefore, it is expected that the progress of fiscal capital investment in the first quarter of this year will be advanced and strengthened. With reference to recent years, it is expected that a net investment of 700-850 billion yuan will be made in March.

  In terms of monetary policy tools, 700 billion yuan of liquidity is expected to be withdrawn.

On March 7th and 16th, MLF expired 104.5 billion / 327 billion, and the reverse repurchase in the first half of March totaled 260 billion.

After the aggregation, the stock monetary policy instruments in March expired a total of 691.5 billion yuan, concentrated in the middle and early March.

  As for interest rate debt, it is expected that liquidity will be 400-500 billion.

Local debt will continue to be issued at high speed in March. We estimated in the annual report “Winning the War: China’s Macroeconomic and Strategic Outlook 2019” that increasing local government debt in 2019 can replace 2.

85 trillion, currently it may be around 3 trillion.

According to the assumption that most of the additional debt issuance is completed before the fourth quarter and 70% issuance in the first and second quarters, considering that approximately 770 billion has been issued from January to February, it is expected that new local debt will be issued in March from 300 to 400 billion.

Coupled with government bonds and government bonds, the net financing scale of interest rate bonds in March is estimated to be 400-500 billion.

  Taken together, the liquidity gap in March was about 150 billion yuan. After two reductions in one month, there was no obvious liquidity gap in the capital market.

  III. March liquidity forecast: The capital interest rate center rose slightly, and the change increased. The forward-looking liquidity gap cannot clearly point to the subsequent tightening of liquidity, because the liquidity environment is basically a marginal change in monetary policy.

For example, one month before the RRR cut, we calculated that the pre-holiday liquidity gap exceeded 3 trillion, but after continuous RRR cuts and open market operation net hedging, the January interbank deposit pledged repo rate (DR007) replaced 2017.The lowest level since January.

  Although the current economic fundamentals do not support the direction adjustment of monetary policy, the probability of further easing is also relatively small.

In March, liquidity is expected to tighten slightly from January to February, returning to the level of the fourth quarter of 2018, and gradually improving.

  This issue can be viewed from several perspectives.

  First, money market liquidity has been too loose in the past two months.

DR007 has fallen back to the level of September 2016, which is only 12bps from the lowest point, and since January, DR007 has a 7-day reverse repo rate (2.

55%), 南宁桑拿 so the liquidity level of the currency market in the past 2 months is even more accommodative than in the 2016 “asset shortage”.

In the process of interest rate marketization, in order to ensure the effectiveness of the interest rate corridor, money market interest rates have been re-extended to break through the borders and boundaries. Therefore, it is necessary to gradually reduce liquidity or reduce policy interest rates (monetary market interest rate reduction).

At present, before the Federal Reserve ‘s interest rate meeting on March 21, it is clear that the probability of interest rate cuts in the domestic money market is not high. Therefore, the DR007 hub in March may pick up from January to February, which is close to the level of the fourth quarter of 2018.
Figure 2: Interbank liquidity levels from January to February are higher than in the first half of 2016 (%) Source: WIND, Tianfeng Securities Research Institute Second, monetary policy enters the period of effect observation.In the overall budget, the growth rate of social financing rebounded in January, and there is not much room for the current policy to fall back. It is expected that the growth rate of social financing will run in a narrow range between 10% and 11% for most of the time. Although the rebound is not significant, butOverall higher than in the second half of 2018.

Price budget. The rapid decline of the money market interest rate in this round started in the second quarter of 2018, and the bill financing interest rate basically fell simultaneously, to only three in the fourth quarter.

84%, which also brought the problem of structural deposit arbitrage; the general loan interest rate has started to decline from 4 quarters, and whether it can continue to decline remains to be further observed; the policy intervention of personal housing loan interest rates has been stronger, since the first quarter of 2017It continues to rise, and it is expected that there will be downward space in the future.

  Therefore, after experiencing loose liquidity since the beginning of the year, the return of monetary policy from the money market to the real economy has entered an observation period. It is unlikely that monetary policy will be further relaxed until the data are clear.

Figure 3: Conversion of money market interest rate to mortgage interest rate (the length of the SHIBOR sample interval, which can be approximated as DR007) (%) Data source: WIND, Tianfeng Securities Research Institute Third, affected by regulatory crackdown on arbitrage, the net value of February billsThe financing ranking dropped significantly in January.

At the State Council meeting on February 20, the leadership paid particular attention to the issue of capital idling. The relevant speech also mentioned the need to control capital idling and combat arbitrage.

According to the data of the Shanghai Bills Exchange, the net acceptance of commercial bills (including commercial and silver bills) in February is estimated to be -21.7 billion, down by 107.6 billion and 652 billion from January and December last year, respectively.The decline was also higher than in previous years.

Figure 4: Comparison of annual growth rates of net acceptances and balances of commercial bills. Data source: WIND, Tianfeng Securities Research Institute. Fourth, monetary policy is subject to supplementary restrictions on terms of trade.

The conclusion of the China-US trade agreement may have an important impact on the RMB exchange rate and domestic current account balances. The RMB exchange rate lacks flexibility to depreciate and even needs to appreciate. After expanding imports, the trade surplus in goods narrows, and the current account may shift from a surplus to a deficit.

Therefore, the supplementary terms of trade constrain the easing space for domestic monetary policy to form an overlap. Further easing is likely to wait until the Federal Reserve ‘s monetary policy changes first.

  In summary, for short-term liquidity, we believe that the three-month capital interest rate hub will rise and increase. Therefore, we recommend that you rationally observe the impact of monetary policy attitudes on liquidity, and you need to calm down when you are crazy; for medium liquidity environments,We are still more optimistic until fundamentally there has been a noticeable steady growth.

In addition, “deepening financial supply-side reforms” requires both a strong capital market and a stable low interest rate environment.

  Risks suggest that Fed ‘s policy shift is not as good as expected; China-US trade talks are not progressing as expected