Iron Ore and A-share Market Weekly Report and Global Capital Market Weekly Report 20240219
Overall
• There is still room for decline in the arrival level of imported ore after the holiday season, while demand-side iron and water production continues to recover. The increase in iron water production continues to be suppressed by poor profits of steel companies. It is expected that total imported ore inventories will peak. In terms of inventory structure, the port pressure process and steel companies' inventories tend to decline after the holiday season, causing ore resources to accumulate mainly in the port sector. $SSIF DCE Iron Ore Futures Index ETF (03047.HK)$
On the supply side
• Global shipments were 25.89 million tons, a decrease of 2.66 million tons, of which Australia shipped 14.82 million tons, a decrease of 1.31 million tons, Brazil shipped 5.74 million tons, a decrease of 1.38 million tons, and non-mainstream shipments were 5.32 million tons, an increase of 30,000 tons over the previous month.
• Global ore shipments before the holiday season were higher than the same period in nearly three years, and FMG shipments have returned to a high level during the same period. Rio Tinto's train derailment accident occurred during the long vacation. Since the derailment occurred on the double track section, the impact is expected to be small. The arrival level was affected by the decline in Brazilian ore shipments at the beginning of the year. It is expected that the domestic arrival level will still have some room to decline around mid-February. Affected by Spring Festival factors, domestic mineral output declined before the holiday season and is expected to recover after the holiday.
Demand side
• Two blast furnaces were overhauled. This was routine maintenance, which reduced molten iron production by 0.42 thousand tons per day. The estimated operating rate was 76.53%, down 0.14% from before the holiday season. The supply of five major lumber varieties this week was 8.040,600 tons, a decrease of 128,800 tons from week to week, a decrease of 1.6%.
• The resumption of production by steel companies before the holiday fell short of expectations. According to the steel companies' plans to resume production, it is expected that the pace of increase in iron and water production will increase after the holiday season. At the same time, the impact of poor profits of steel companies continues. In the subsequent process of steel companies' resumption of production, profit levels will still inhibit steel companies' resumption of production. It is estimated that iron and water output will be close to 2.3 million tons/day by the end of February.
In terms of inventory
• The total stocks of iron ore imported from steel mills across the country were 109.1212 million tons, an increase of 880,000 tons over the previous month; the current daily consumption of imported ore in the sample steel mills is 2,748,500 tons, an increase of 20,900 tons over the previous month.
This week's A-share weekly report:
1 “Assignment 1”: China's assets are generally rising, and it is possible to “copy”
During the Spring Festival holiday (February 9 to February 18, same below), Chinese-related assets in overseas markets showed a general rise. Looking at the equity market, the US Chinese stock index and the Hong Kong stock Hang Seng Index all recorded gains (4.61% and 2.91%). In addition, FTSE A50 futures recorded a 2.6% increase during the Spring Festival holiday; the offshore RMB remained stable and appreciated slightly when the US dollar index was strong. The general rise in China's assets resonates with the good news of fundamentals, and the financial data for January “got off to a good start.” The outstanding performance of assets related to China also reflects investors' pricing of the financial data released after the A-share market was closed: the financial data had bright spots in terms of total volume and structure. The scale of social financing reached a record high of 6.5 trillion yuan in January, and the scale of new RMB loans was second only to January 2023, reaching 4.92 trillion yuan, which were the main drivers for the new scale of social financing. Both exceeded Wan De's agreed expectations of $5.78 trillion and $4.67 trillion. From a structural point of view, corporate bond financing in social finance increased year-on-year in the same month, echoing the effect of the downward interest rate level mentioned in the central bank's “Fourth Quarter Monetary Policy Implementation Report”; in terms of credit, household loans increased higher year-on-year in the same month, and medium- and long-term loans increased by 404.1 billion yuan year-on-year, the highest value since March 2022. With the successive introduction of real estate policies, residents' willingness to “increase leverage” has rebounded. The intervention of leveling forces before the Spring Festival mitigated the liquidity risk of individual stocks in the small and medium capitalization. After large fluctuations, the driving force will return to the market and fundamentals themselves. “Elasticity” may not be in the small to medium market but in the large market. $CHINA RES LAND (01109.HK)$
2 “Assignment 2”: Overseas inflation returns, “copy” upstream
The US CPI increased 3.1% year-on-year in January, exceeding Bloomberg's agreed forecast of 2.9%. The core CPI for January was 3.9% year-on-year, and Bloomberg agreed to expect 3.7%. Among them, service inflation was the main driver, and PPI data points to the same conclusion. After the data was released, the probability that the Fed would cut interest rates in March was less than 10%. The probability of cutting interest rates in May dropped to 30%, and the rate cut cycle is likely to begin in June 2024 or later. Meanwhile, the yield on 2-year US Treasury bonds jumped, and the maturity spread deepened compared to before the Spring Festival. Meanwhile, extreme weather and geopolitical disputes have become supply-side support for international oil prices, posing hidden dangers for the Federal Reserve to control inflation in the future. For A-shares, what can be learned is that when inflation returns, upstream certainty is strong. Due to their global pricing properties, the profitability of Chinese energy companies can also increase when commodity prices rise. Relatively speaking, downstream companies face pressure on the profit side of increased competition.
3 “Assignment 3”: “old and new” grow alternately, “copy” structure
Around the Spring Festival holiday, two major technology products were released: Apple's Vison Pro and Open AI's Sora. Judging from the Baidu Search Index and Information Index, the latter is significantly more popular than the former. This also reflects from the side that the technological wave is changing, moving from “consumer electronics” to “artificial intelligence” in the past. However, in the new wave of technology, limited by “anti-globalization” and participation thresholds, the participation of Chinese enterprises in the industrial chain is not as broad and deep as the previous round. This makes it difficult to translate the new wave of technology into capital returns on Chinese companies' statements in the short term. In terms of consumption, the “flexibility” of service consumption reflects the narrowing of the consumption gap. Guided by “common prosperity,” it may be the growth pole for future consumption.
• There is still room for decline in the arrival level of imported ore after the holiday season, while demand-side iron and water production continues to recover. The increase in iron water production continues to be suppressed by poor profits of steel companies. It is expected that total imported ore inventories will peak. In terms of inventory structure, the port pressure process and steel companies' inventories tend to decline after the holiday season, causing ore resources to accumulate mainly in the port sector. $SSIF DCE Iron Ore Futures Index ETF (03047.HK)$
On the supply side
• Global shipments were 25.89 million tons, a decrease of 2.66 million tons, of which Australia shipped 14.82 million tons, a decrease of 1.31 million tons, Brazil shipped 5.74 million tons, a decrease of 1.38 million tons, and non-mainstream shipments were 5.32 million tons, an increase of 30,000 tons over the previous month.
• Global ore shipments before the holiday season were higher than the same period in nearly three years, and FMG shipments have returned to a high level during the same period. Rio Tinto's train derailment accident occurred during the long vacation. Since the derailment occurred on the double track section, the impact is expected to be small. The arrival level was affected by the decline in Brazilian ore shipments at the beginning of the year. It is expected that the domestic arrival level will still have some room to decline around mid-February. Affected by Spring Festival factors, domestic mineral output declined before the holiday season and is expected to recover after the holiday.
Demand side
• Two blast furnaces were overhauled. This was routine maintenance, which reduced molten iron production by 0.42 thousand tons per day. The estimated operating rate was 76.53%, down 0.14% from before the holiday season. The supply of five major lumber varieties this week was 8.040,600 tons, a decrease of 128,800 tons from week to week, a decrease of 1.6%.
• The resumption of production by steel companies before the holiday fell short of expectations. According to the steel companies' plans to resume production, it is expected that the pace of increase in iron and water production will increase after the holiday season. At the same time, the impact of poor profits of steel companies continues. In the subsequent process of steel companies' resumption of production, profit levels will still inhibit steel companies' resumption of production. It is estimated that iron and water output will be close to 2.3 million tons/day by the end of February.
In terms of inventory
• The total stocks of iron ore imported from steel mills across the country were 109.1212 million tons, an increase of 880,000 tons over the previous month; the current daily consumption of imported ore in the sample steel mills is 2,748,500 tons, an increase of 20,900 tons over the previous month.
This week's A-share weekly report:
1 “Assignment 1”: China's assets are generally rising, and it is possible to “copy”
During the Spring Festival holiday (February 9 to February 18, same below), Chinese-related assets in overseas markets showed a general rise. Looking at the equity market, the US Chinese stock index and the Hong Kong stock Hang Seng Index all recorded gains (4.61% and 2.91%). In addition, FTSE A50 futures recorded a 2.6% increase during the Spring Festival holiday; the offshore RMB remained stable and appreciated slightly when the US dollar index was strong. The general rise in China's assets resonates with the good news of fundamentals, and the financial data for January “got off to a good start.” The outstanding performance of assets related to China also reflects investors' pricing of the financial data released after the A-share market was closed: the financial data had bright spots in terms of total volume and structure. The scale of social financing reached a record high of 6.5 trillion yuan in January, and the scale of new RMB loans was second only to January 2023, reaching 4.92 trillion yuan, which were the main drivers for the new scale of social financing. Both exceeded Wan De's agreed expectations of $5.78 trillion and $4.67 trillion. From a structural point of view, corporate bond financing in social finance increased year-on-year in the same month, echoing the effect of the downward interest rate level mentioned in the central bank's “Fourth Quarter Monetary Policy Implementation Report”; in terms of credit, household loans increased higher year-on-year in the same month, and medium- and long-term loans increased by 404.1 billion yuan year-on-year, the highest value since March 2022. With the successive introduction of real estate policies, residents' willingness to “increase leverage” has rebounded. The intervention of leveling forces before the Spring Festival mitigated the liquidity risk of individual stocks in the small and medium capitalization. After large fluctuations, the driving force will return to the market and fundamentals themselves. “Elasticity” may not be in the small to medium market but in the large market. $CHINA RES LAND (01109.HK)$
2 “Assignment 2”: Overseas inflation returns, “copy” upstream
The US CPI increased 3.1% year-on-year in January, exceeding Bloomberg's agreed forecast of 2.9%. The core CPI for January was 3.9% year-on-year, and Bloomberg agreed to expect 3.7%. Among them, service inflation was the main driver, and PPI data points to the same conclusion. After the data was released, the probability that the Fed would cut interest rates in March was less than 10%. The probability of cutting interest rates in May dropped to 30%, and the rate cut cycle is likely to begin in June 2024 or later. Meanwhile, the yield on 2-year US Treasury bonds jumped, and the maturity spread deepened compared to before the Spring Festival. Meanwhile, extreme weather and geopolitical disputes have become supply-side support for international oil prices, posing hidden dangers for the Federal Reserve to control inflation in the future. For A-shares, what can be learned is that when inflation returns, upstream certainty is strong. Due to their global pricing properties, the profitability of Chinese energy companies can also increase when commodity prices rise. Relatively speaking, downstream companies face pressure on the profit side of increased competition.
3 “Assignment 3”: “old and new” grow alternately, “copy” structure
Around the Spring Festival holiday, two major technology products were released: Apple's Vison Pro and Open AI's Sora. Judging from the Baidu Search Index and Information Index, the latter is significantly more popular than the former. This also reflects from the side that the technological wave is changing, moving from “consumer electronics” to “artificial intelligence” in the past. However, in the new wave of technology, limited by “anti-globalization” and participation thresholds, the participation of Chinese enterprises in the industrial chain is not as broad and deep as the previous round. This makes it difficult to translate the new wave of technology into capital returns on Chinese companies' statements in the short term. In terms of consumption, the “flexibility” of service consumption reflects the narrowing of the consumption gap. Guided by “common prosperity,” it may be the growth pole for future consumption.
4 “Homework” cannot be completely “copied”; the starting point is physical flow
China's assets generally rose during the Spring Festival, which resonated with the January financial data “off to a good start”, reflecting investors' pricing on China's fundamental restoration. However, the asset price “operation” of overseas markets during the Spring Festival holiday cannot be fully “copied”. Based on the three clues reflected in the prices of major asset classes — inflation, technology, and expected recovery of Chinese assets, our recommendations are as follows: First, we give priority to recommending resource product chains linked to physical attributes: oil, coal, copper, oil transportation, aluminum, and gold. From a dividend perspective, cyclical dividends are also more cost-effective than traditional stable dividend assets. Second, as a broad asset in China, the Shanghai and Shenzhen 300 can be actively deployed. Among them, the bottom of the large-market growth style may have already appeared (such as the Mao Index and large-cap stocks in the Ning portfolio). Considering the policy side's demand for managing the market value of state-owned enterprises, it is recommended to recommend industries that are undervalued and account for a high share of the market value of state-owned enterprises: banking and non-bank finance. Third, stability dividends still have long-term allocation value: they include utilities (electricity, water, gas) and transportation (roads, ports) with monopoly characteristics.
Global Capital Markets Weekly Report:
We raised the S&P 500 year-end target from 5100 points to 5200 points, which is 4% higher than the current level. The increase in profit forecasts is the driving factor behind this correction. Our revised 2024 earnings per share forecast is $241 (up 8%), higher than the median forecast of $235 (up 6%) from top-down strategists, reflecting our expectations for stronger economic growth and higher profits in the information technology and communications services industry, including 5 of the “Magnificent Seven” stocks. We expect the price-earnings ratio valuation multiples of the equal weight S&P 500 index (16 times) and the total market capitalization weight index (20 times) to remain close to the current level, making profit growth the main driving force for maintaining the rise this year. $NVIDIA (NVDA.US)$
China's assets generally rose during the Spring Festival, which resonated with the January financial data “off to a good start”, reflecting investors' pricing on China's fundamental restoration. However, the asset price “operation” of overseas markets during the Spring Festival holiday cannot be fully “copied”. Based on the three clues reflected in the prices of major asset classes — inflation, technology, and expected recovery of Chinese assets, our recommendations are as follows: First, we give priority to recommending resource product chains linked to physical attributes: oil, coal, copper, oil transportation, aluminum, and gold. From a dividend perspective, cyclical dividends are also more cost-effective than traditional stable dividend assets. Second, as a broad asset in China, the Shanghai and Shenzhen 300 can be actively deployed. Among them, the bottom of the large-market growth style may have already appeared (such as the Mao Index and large-cap stocks in the Ning portfolio). Considering the policy side's demand for managing the market value of state-owned enterprises, it is recommended to recommend industries that are undervalued and account for a high share of the market value of state-owned enterprises: banking and non-bank finance. Third, stability dividends still have long-term allocation value: they include utilities (electricity, water, gas) and transportation (roads, ports) with monopoly characteristics.
Global Capital Markets Weekly Report:
We raised the S&P 500 year-end target from 5100 points to 5200 points, which is 4% higher than the current level. The increase in profit forecasts is the driving factor behind this correction. Our revised 2024 earnings per share forecast is $241 (up 8%), higher than the median forecast of $235 (up 6%) from top-down strategists, reflecting our expectations for stronger economic growth and higher profits in the information technology and communications services industry, including 5 of the “Magnificent Seven” stocks. We expect the price-earnings ratio valuation multiples of the equal weight S&P 500 index (16 times) and the total market capitalization weight index (20 times) to remain close to the current level, making profit growth the main driving force for maintaining the rise this year. $NVIDIA (NVDA.US)$
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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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