2024-01-29
What signal does the steel market send to the "downgrade" again?
At the beginning of the new year, China's central bank announced another "downgrade". As an important monetary policy operation, the people's Bank of China once again "cut the reserve requirement", which is bound to have a positive impact in many aspects, resulting in a better-than-expected steel market in the spring.
The 1. "downgrade" is stronger than expected, indicating that the decision-making level is determined to consolidate and expand the momentum of the economic recovery.. The People's Bank of China has decided to reduce the reserve requirement ratio of financial institutions by 0.5 percentage points from February 5, 2024 (excluding financial institutions that have implemented a 5 per cent reserve requirement ratio), and after this reduction, the weighted average reserve requirement ratio of financial institutions is about 7.0 per cent. It should be said that the "RRR cut" by 0.5 percentage points exceeded market expectations. The People's Bank of China cut the RRR by 0.25 percentage points twice in 2023, which indicates that monetary policy has increased its implementation.
The increase in monetary policy easing shows that the decision-making level strengthens counter-cyclical adjustment and cross-cyclical adjustment, consolidates and expands the strong determination of the economic recovery, which will have a greater positive effect on the current and annual economic operation. It is expected that with the introduction and implementation of more and more vigorous measures to stabilize growth, China's economy will achieve the scheduled growth target of about 5% in 2024, which will greatly boost the confidence of the steel market. It is undoubtedly good news.
2. "downgrade" to provide more liquidity, for the total demand for steel "troika" to add momentum. In 2023, under the counter-cyclical adjustment of the decision-making level, the annual economic growth of 5.2, steel demand-related indicators, except for real estate, have achieved steady growth. Affected by it, the total demand for steel in the country will increase steadily in 2023. Even so, the demand for steel is still insufficient. Market estimates, the re-cut will provide the market with long-term liquidity of about 1 trillion yuan, and help the active fiscal policy to take effect. A large amount of liquidity has entered the economic field, entering industrial production, fixed asset investment and foreign trade exports, which will undoubtedly add impetus to the "troika" of China's total steel demand. It is expected that the steel market in the spring of this year should be better than expected.
3. directional "interest rate cut" indicates that the future will be a comprehensive "interest rate cut", the use of funds cheaper.. At the same time as this re-cut, the People's Bank of China will also cut the interest rate on refinancing and rediscount for agriculture and small-scale loans by 0.25 percentage points, from 2 percent to 1.75 percent. Considering that the domestic price level is not high, the real interest rate is higher than the nominal interest rate, the monetary policy in Europe and the United States from aggressive interest rate hikes to interest rate cuts, the structural interest rate cut coverage is not enough, and economic growth needs lower capital use costs and other factors, so there is a new year to lower interest rates and space requirements. Pan Gongsheng, governor of the people's Bank of China, announced the above news at the press conference of the State Information Office on the afternoon of January 24, saying that the central bank will continue to promote the steady decline of social comprehensive financing costs. Therefore, it is expected that there will be a full-scale interest rate cut after the central bank's downgrade. Affected by the above policies and information, interbank interest rate bond yields quickly downward, 10-year Treasury active coupon "230026" yield down 1.35bp, at 2.4900, again breaking the 2.5 mark; 10-year Treasury active coupon yield down 1.2bp, at 2.6850.
In the future, the interest rate of funds will be reduced, and the cost of using funds will continue to decline. The use of cheaper funds is bound to have a stimulating effect in both investment and consumption, especially in the real estate market, including real estate development investment and housing sales. It is expected that under the blessing of continued RRR cuts and interest rate cuts, the demand for funds in the real estate market will be effectively improved in 2024, and its loan interest rates will also drop significantly. As a result, real estate investment will stabilize and pick up throughout the year, and demand for construction steel may therefore exceed expectations.
4. "downgrade" is conducive to curbing the momentum of RMB appreciation and reducing the pressure on the steel market during the year.. For a period of time, the exchange rate of RMB against the US dollar has risen by a large margin, resulting in pressure on the domestic steel and black series of commodities. This re-cut, as well as the expected overall interest rate cut, will to a certain extent hedge the impact of the Fed's expected interest rate cut during the year, thereby easing the momentum of RMB appreciation and correspondingly reducing the resulting pressure on the steel market.. (Lange expert Chen Kexin original article, reprint please indicate the source)
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