Abstract In view of the economic rebound, and the previous policy effects have not yet fully manifested, we believe that the recent policy loosening momentum has peaked. Real estate policies and monetary credit conditions may not be further relaxed at the margin, but they will not be directly accepted. We expect macro politics in the coming months...
In view of the economic rebound, and the previous policy effects have not yet fully manifested, we believe that the recent policy loosening momentum has peaked. Real estate policies and monetary credit conditions may not be further relaxed at the margin, but they will not be directly accepted. We expect that the macro policy will maintain the current tone of the basics in the coming months.
Recent policy easing momentum has peaked
The rebound continues
We estimate that the upcoming economic data will show that real economic activity continued to rebound in April, but due to the high base, the year-on-year growth rate of industrial production and real estate activities may fall back from March. The year-on-year growth rate of industrial production may fall back slightly to 6.6%, and the year-on-year growth rate of real estate sales and new construction may also slow down due to the high base.

The growth rate of fixed asset investment may be further accelerated
In view of the low base last year, the continued easing of policies, and the strong start-up of new real estate and sales in recent months, the year-on-year growth rate of real estate investment in April may continue to accelerate. On the other hand, infrastructure investment in April may still be relatively stable due to low base, strong credit expansion in recent months, and special construction fund issuance and local project promotion. We estimate that the year-to-date overall fixed asset investment increased by 11.3% year-on-year.

CPI rebounded slightly, PPI narrowed
In view of the continued sharp increase in pork prices and continued upward pressure on CPI, we estimate that the CPI growth rate in April will slightly increase to 2.4%. On the other hand, domestic raw material prices rebounded. Correspondingly, the PMI purchasing price index rebounded to 57.6, a five-year high. We estimate that the PPI may continue to rebound in April, and the year-on-year decline narrowed to -3.7%.

Policy outlook
We believe that the recent policy loosening momentum has already peaked. We expect that the macro policy will remain unchanged in the next few months, and further review and necessary adjustments will be made during the second quarter of the data release and the Politburo meeting in July.
Following the strong rebound in economic activity in March, we expect real estate activity and industrial production in April to continue to grow steadily, but the momentum has slowed. In April, the PMI of the Bureau of Statistics fell back to 50.1 from 50.2 in March, with new orders (from 51.4 to 51) and raw material inventories (from 48.2 to 47.4) a larger decline. The production volume index also slowed slightly, but remained at a relatively steady pace of 52.2.

We estimate that the April macro data will show:
Industrial production is still relatively stable, but it has slowed slightly due to the base effect. In April, coal consumption of power plants decreased year-on-year, and the growth rate of power generation may decline. However, the national average blast furnace operating rate rebounded slightly. The crude steel output of large and medium-sized steel mills fell by about 1.3% year-on-year in the first 20 days of April, similar to March, indicating that steel production in April may be relatively stable. Due to the high base last year, we estimate that the growth rate of industrial production may drop slightly from 6.8% in March to 6.6%, but its growth rate may still be relatively strong.
Real estate sales and new construction have slowed down. Recently, Shanghai, Shenzhen and some second-tier cities have tightened their real estate policies. As a result, high-frequency data show that the growth rate of real estate sales in 30 large and medium-sized cities in April fell from the high in March. Coupled with the impact of high base, we expect the national real estate sales growth rate may slow down to 10-20%, but still relatively strong. As the sales of the premises are still relatively stable and the developer's confidence is picking up, the new construction may continue to grow. In general, we estimate that the area under construction of real estate may maintain steady growth, coupled with the low base last year, the growth rate of real estate investment may accelerate.
The year-on-year growth rate of fixed asset investment further accelerated. In addition to the rebound in real estate investment, infrastructure investment may be further accelerated with the help of low base, which will support the overall growth rate of fixed asset investment in April. Since the beginning of the year, the strong expansion of credit, the acceleration of the first-quarter special construction fund to support local projects, the acceleration of local government debt replacement, the improvement of local government cash flow, and the acceleration of local projects have also supported infrastructure investment. On the other hand, although industrial production has recently improved and there has been a replenishment of stocks, manufacturing investment may still be flat under the drag of overcapacity. Overall, we believe that the overall growth rate of fixed asset investment in April may accelerate from 10.7% in March to 12.4%, and year-on-year growth of 11.3%.
The CPI rebounded slightly and the PPI fell. High-frequency data showed that food prices in April fell slightly from the previous month. Although vegetable prices have fallen sharply and egg and fruit prices have also rebounded, pork prices have accelerated. As we have written before, although the pig food ratio has reached a new high since 2009, the restocking of the sows and live pigs has not improved. Overall, we believe that the April CPI growth rate may slightly increase to 2.4%. Looking ahead, we believe that pork prices may continue to be high in the second half of the year, but the year-on-year growth rate will tend to decline in the base role after the second quarter. On the other hand, domestic raw material prices continued to rebound, but the momentum slowed down. Similarly, global commodity prices also improved from the previous month. Meanwhile, the purchasing price index of the PMI in the statistical bureau rebounded significantly to a five-year high in April. Therefore, we believe that the April PPI year-on-year decline may continue to narrow to -3.7%.
Export growth slowed down. Recently, the confidence of enterprises in the European and American markets has improved, and both the US ISM index and the German IFO corporate confidence index have increased. However, the PMI data of the Statistics Bureau in April showed a slight slowdown in external demand. Coupled with the high base last year, we estimate that the year-on-year growth rate of exports may slow down to around 3%. On the other hand, the recovery of real estate and industrial activities, the stabilization of global commodity prices, and the low base last year, should help the import decline in April narrow to around -3.5%. Therefore, we estimate that the trade surplus in April will increase to 43.5 billion US dollars.
The scale of new social financing has slowed seasonally, but overall credit growth is still strong. In general, the pace of the first quarter of credit last year was usually relatively strong, and this year is no exception. We believe that bank lending will gradually return to normal after the first quarter, and it is expected that RMB loans will increase by 800 billion in April. On the other hand, due to the impact of default and bond market volatility, the net issuance of corporate bonds may have shrunk significantly from the previous 700 billion yuan to around 150 billion yuan. In general, we estimate that the scale of new social financing in April is about 1.1 trillion, the total amount is significantly lower than the March level, but it is basically the same as the same period last year. In April, the issuance of local government bonds increased significantly to 1 trillion yuan, a new monthly high, most of which was used for local government debt swaps. After adjusting for this, we estimate that the overall credit growth rate (social financing scale minus stock financing + local government debt balance) may be further accelerated.
Foreign exchange reserves are stable. With the further tightening of capital control measures and the renminbi exchange rate remained stable in April, capital outflow pressure may be further eased. Given the appreciation of the euro, the yen and the pound against the US dollar in April, we estimate that changes in the exchange rate of the major reserve currencies will contribute to a positive valuation of more than $10 billion in foreign exchange reserves (down from $40 billion in March). On the other hand, the trade surplus in April will expand and the contribution to foreign exchange reserves will increase. Therefore, we estimate that foreign exchange reserves in April may be basically stable at 3.21 trillion US dollars.

Policy outlook
The Politburo meeting, which just ended at the end of April, believed that the “better start” was achieved in the first quarter, but also stressed that the downward pressure on the economy is still relatively large. The meeting did not release a clear signal of further easing, but emphasized a number of future policy priorities, including maintaining a stable RMB exchange rate, accelerating the urbanization rate of the registered population, orderly digesting real estate stocks and implementing differentiated regulatory policies, and properly handling employee employment. Problems, concerns about price changes, etc.
In view of the economic rebound, and the previous policy effects have not yet fully manifested, we believe that the recent policy loosening momentum has peaked. Real estate policies and monetary credit conditions may not be further relaxed at the margin, but they will not be directly accepted. We expect that the macro policy will remain unchanged in the next few months, and further review and necessary adjustments will be made during the second quarter of the data release and the Politburo meeting in July. (The author of this article: China Chief Economist, UBS Securities.)

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