Iron Ore and A-share Market Weekly Report and Global Capital Market Weekly Report
Overall
• Global iron ore shipments have increased slightly, and non-mainstream countries continue to gain momentum, and subsequent iron ore supply demand will continue to be relaxed.
• Iron and water production continues to decline, steel and real estate market performance is sluggish, the downstream off-season approaches, and the demand side continues to weaken.
• At the macro level, overseas interest rate hikes may slow down, but the banking crisis still exists, and China's domestic CPI, social finance, and credit data for April fell short of expectations. $SSIF DCE Iron Ore Futures Index ETF (03047.HK)$
On the supply side
• Total global shipments were 29.65 million tons, a decrease of 371,000 tons, and Australian shipments were 18.758 million tons, a decrease of 10,000 tons. Of these, the volume sent from Australia to China was 15.531 million tons, an increase of 1.127 million tons over the previous month. Brazil shipped 7.397 million tons, an increase of 375,000 tons over the previous month.
• There are still port repairs in Australia this week, but the impact of the weather has abated, and subsequent shipments will gradually stabilize.
Demand side
• The operating rate of blast furnaces in 247 steel mills was 81.10%, down 0.59% from the previous week, down 1.51% from last year; the utilization rate of blast furnace ironmaking capacity was 89.03%, down 0.46% month-on-month, up 0.75% year on year.
• The average daily iron and water production was 2.392,500 tons, down 12,300 tons from the previous month and 10.7 million tons from the previous year.
In terms of inventory
• Imported iron ore stocks in 45 ports across the country were 126.06 million tons, down 1.362,200 tons from the previous month; the average daily dredging volume was 2.975,200 tons, a decrease of 56,400 tons.
• Overseas arrivals are expected to increase month-on-month.
Weekly A-share report for this week:
1. The TMT and “China Special Assessment” adjustments. The “no weak recovery”, which was later felt, all of the major broad-based indices fell this week. The main driving forces of the market, TMT and the “China Special Price”, were adjusted. Only a few high-dividend industries (such as electricity and utilities, coal, textiles, clothing, and steel) and new energy sources recorded positive returns. In fact, if TMT and resource+asset-heavy state-owned enterprises are excluded, A-shares have actually peaked and retreated since February. By mid-March, they had already leveled off their annual gains, and are now in negative returns. Some investors didn't trade the so-called “downturn in inflation” and the lack of a “weak recovery” until this week, which is probably an afterthought. Since March, everything from black commodities to the stock market has been fully traded. It is worth mentioning that on Friday after the publication of social financing+ China's inflation data, stock market-themed investments “stalled out”, bond futures peaked, and black rebounded. 2 There is no “risk of recession” in China. There is only a long season at the bottom. In the process of economic structural transformation, the traditional paradigm may no longer be able to catch signs of a shift in economic momentum: (1) April credit data continued to fall short of expectations, which means that the balance sheets of traditional debt expansion sectors were still shrinking, and this may cause social finance to become less and less relevant to economic fundamentals. Historically, the bottom of social finance is generally ahead of the bottom of M1-M2 and the bottom of corporate profit, no more than 5 quarters at most. However, 5 quarters after the social finance bottom appeared, there is no sign that M1-M2 and corporate profits have bottomed out. $TENCENT (00700.HK)$ $CHINA MOBILE (00941.HK)$
(2) The decline in inflation data exceeded expectations, but there were new structural changes. Both PPI and CPI have now fallen back to their previous low (the lowest level in 2020); however, from a structural point of view, there has been a clear upward trend in the clothing, education and entertainment/health care categories in the CPI. In terms of economic structure, low- and middle-end consumption, county consumption, and exports to countries along the Belt and Road are prominent, but the overall momentum is limited, and it cannot even be reflected in the revenue and profits of listed companies. Since the balance sheet expansion sector (residents, local government) continued to shrink in the past, this prevented the “pro-cyclical” momentum expected by the market from returning.
Global Capital Markets Weekly Report
1. Our forecast for the US economic growth in 2023 is still far higher than the 1.6% (annual average) expected by the market, and the probability of a 12-month recession is far lower than the 35% expected by the market. We'll roughly evenly divide the latter figure into the possibility that the current banking turmoil — or another short-term shock such as the debt ceiling crisis — will push the economy into recession in the next two quarters, and the possibility that upward inflation will unexpectedly force the economy into recession. The Federal Reserve will implement more monetary tightening policies at the end of 2023/early 2024, which will increase the risk of a recession. Both of these outcomes are possible, but we don't think either is likely.
2. Interest rate market participants are most concerned about the risk that unrest in the banking sector will trigger a recent recession. But two months after SVB went out of business, evidence of its significant impact is still surprisingly limited. In terms of economic data, GDP grew 1.8% in the second quarter, ISM rose slightly in April, and employment reports unexpectedly rose. (Also note that last week's surge in first-time jobless claims was distorted by the apparent noise in Massachusetts.) In terms of credit availability, the Federal Reserve's senior loan officer survey showed that the proportion of banks tightening loan standards increased only slightly further, while the April NFIB survey showed that the proportion of small businesses reporting difficulties in obtaining credit dropped unexpectedly. What is certain is that anecdotal evidence and continued pressure on regional bank stock prices indicate that the impact is still expanding, so it is still too early to lower our estimate that pressure on the banking sector will reduce US fourth/fourth quarter economic growth by 0.4 percentage points. However, given the support of other factors, such as a recovery in real income and the stabilization of the real estate market, this impact would need far greater than 0.4 percentage points to push the economy into recession.
3. The news about inflation (and the risk of a long-term recession) is also quite encouraging. Although CPI, excluding food and energy, rose 0.41% in April, one-third of the increase was due to a sharp (almost certainly temporary) 4.4% increase in used car prices. More stable potential inflation indicators, such as the Cleveland Federal Reserve's revised average CPI, show continued (if gradual) progress. Despite unexpectedly high ECI in the first quarter and average hourly wage in April, our continuous wage tracking metrics continued to slow from a peak of 6% in early 2022 to 4.5% in early 2023.
4. Will this steady adjustment continue? Much depends on whether job vacancies can continue to fall in the face of a sharp rise in unemployment — in other words, whether the “Beveridge curve” will continue to move inward. So far, the answer is yes, and it's hard to overstate how unusual the recent experience was. Throughout the post-war period, job vacancy rates have never fallen as much as in the past year, and have not been accompanied by a recession or sharp rise in unemployment. Many economists see this observation as a sign that the worst is yet to come. Instead, we see it as a sign of a different cycle.
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3047 is a team specializing in the research of commodities and smart beta. We like to exchange investment strategies.
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