【HGNH RMB Weekly】

　　Market trend

　　6.3 343 on Friday (February 18) , and the central parity rate of the RMB was lowered by 338 pips compared with last week (February 11). CNY closed at 6.3 265 last week, and CNH closed at 6.3 252 last week . Compared with last week, it has decreased by 327 pips and 424 pips respectively. As of 5:00 pm on Friday, the domestic and foreign RMB spot and 1-year forward spreads are -25pips and -15pips respectively. EUR/RMB at 7.1771 , GBP/RMB at 8.6024 , RMB/JPY at 18.1973 , HKD/RMB at 0.8109 , depreciating by 676pips, depreciating 379pips, depreciating 283pips and increasing 38pips respectively compared to last week .

　　In terms of funds

　　, on February 21, the central bank announced that in order to maintain reasonable and sufficient liquidity in the banking system, on February 21, a 7-day reverse repurchase operation of 10 billion yuan was carried out by way of interest rate bidding, and the winning rate was 2.10%. Wind data shows that the 10 billion yuan reverse repurchase expired today , so the amount of maturity was fully hedged on that day. In terms of funds, the disturbance of MLF expiry at the wrong time led to a general increase in the repurchase rate last Friday, of which the overnight variety rose by about 25bp and returned to above 2.10%. Traders said that although the price of funds has risen, the effective supply has continued to support market sentiment; in addition, in terms of long-term funds, the latest issuance of one-year interbank certificates of deposit of national and major joint-stock banks is concentrated at 2.49%, and the largest planned issuance scale exceeds 10 billion yuan. Yuan, the interest rate gradually rises gradually. A few days ago, the MLF parity was over-renewed in February. The central bank announced that in order to maintain reasonable and sufficient liquidity in the banking system, on February 15, it will carry out 300 billion yuan of 1-year MLF operations (including the renewal of MLF expiry on February 18) and 10 billion yuan of 7-day open market reverse operations. For repurchase operations, the winning rates are 2.85% and 2.10% respectively. Wind data shows that 20 billion yuan of reverse repurchase expired on the same day, a total of 200 billion yuan of MLF expired in February, and the expiration date was February 18. Market participants believe that the amount of credit and social financing in January was soaring, indicating that the previous easing policy has begun to take effect. Although the central bank's tone has not changed, considering the maintenance of a reasonable policy rhythm, the policy interest rate cut in February was suspended, and the MLF interest rate remained stable. Because the central bank needs a period of time to observe the effect of the policy and formulate the follow-up policy direction. In the follow-up, there is still room for lower policy interest rates under the demands of stable growth and lenient credit. A few days ago, the central bank released the “China Monetary Policy Implementation Report for the Fourth Quarter of 2021”, and the thinking of the next stage of monetary policy has been clear. A prudent monetary policy should be flexible and appropriate, increase cross-cycle adjustment, give full play to the dual functions of monetary policy tools in terms of total volume and structure, and focus on making full, precise, and forward-looking efforts, and neither “flooding” , and meet the reasonable and effective financing needs of the real economy, focus on increasing financial support for key areas and weak links, and achieve a better combination of stable total volume and excellent structure. A few days ago, China's financial data for January was released. According to data released by the central bank, the increase in social financing in January was 6.17 trillion yuan, an increase of 984.2 billion yuan over the same period of the previous year; among them, the RMB loans issued to the real economy increased by 4.2 trillion yuan, which is the highest point in a single month statistics, and a year-on-year increase of 4.2 trillion yuan. An increase of 380.6 billion yuan. At the end of January, M2 increased by 9.8% year-on-year, and the growth rate was 0.8 and 0.4 percentage points higher than that at the end of last month and the same period of the previous year, respectively. Renminbi loans increased by 3.98 trillion yuan in January, the highest in a single month, with a year-on-year increase of 394.4 billion yuan.

　　Interpretation of key data and events

　　1. In January , the CPI further fell to 0.9% year-on-year (the previous value was 1.5%, slightly lower than the market expectation of 1.1%). Among the 0.6 percentage points of the decline from the previous month, vegetables and meat contributed 0.5 percentage points, and non-food consumer goods contributed 0.5 percentage points. 0.1 percentage points.

　　Interpretation: The high supply and weak demand drove the price of vegetables and meat to fall, and the food CPI slowed from -1.2% to -3.8% year-on-year. With the increase in the supply of vegetables in the south, the shortage of vegetables in the previous period continued to be alleviated. In January, the CPI for vegetables turned negative year-on-year to -4.1% (previous value was 10.6%). The demand for the festival is weak and the production capacity is still at a high level. Farmers take advantage of the festival to throw the slaughter. The pork sub-component CPI fell to -2.5% month-on-month (average of 3.87% in the past three years), and the year-on-year decline expanded to 41.6% (previous value -36.7%) %). The year-on-year CPI of non-food consumer goods continued to fall to 2% (previous value 2.1%) along with the decline of PPI. However, due to the dislocation of the Spring Festival and the weakening of the impact of the local Chinese New Year, service prices accelerated to 1.7% year-on-year (previous value 1.5%), of which housekeeping and travel prices accelerated, while rental and medical service prices slowed down. The high base and low new growth drove the PPI to fall further to 9.1% year-on-year (the previous value was 10.3%, slightly lower than the market expectation of 9.2%). Among the 1.2 percentage points that fell from the previous month, the price of raw materials in the upper and middle reaches dragged down 1.5 percentage points. The price of electricity rose 0.2 percent. In terms of energy, coal prices hovered at a low level with stable supply and stable prices. In January, the coal mining and washing industry fell to 51.3% year-on-year (previous value was 66.8%). OPEC production growth slowed down, the situation in Central Asia was disturbed, and Libyan equipment overhaul increased. The situation in Russia and Ukraine has heated up, and the PPI of the oil exploration and processing industry has risen month-on-month, but slowed down year-on-year. In terms of ferrous metals, although the steady growth is expected to rise, the margin of supply constraints is relaxed after the output reduction task at the end of the year, coupled with the high base, the ferrous metal smelting and rolling processing industry has slowed down year-on-year. In terms of non-ferrous metals, the recovery of copper inventories was slower than expected, copper prices fluctuated at a high level, and slowed down slightly year-on-year. The risk of production cuts by European refineries continued in winter, and aluminum prices rebounded. In terms of electricity price, the price of electricity and heat production and supply industry increased by 7.7% year-on-year (previous value 4.8%). In addition to the impact of the high base under the stable supply and stable price, the fall in inflation, the anti-seasonal decline in meat prices, the weak rent, and the weak current price of ferrous metals also reflect that demand is still weak, and the policy to stabilize growth still needs to be increased and substantial efforts. In January, the total amount of credit was high and the structure was relatively healthy, showing signs of credit improvement. However, when real estate became a slow variable, while the infrastructure multiplier declined, and the multipliers of green, technological innovation, and digital economy were not strong, monetary and fiscal balances Fiscal still needs to continue to make efforts. Against the background of the epidemic disturbance and the downturn of the financial cycle, the pressure to stabilize growth is relatively large. Accelerated monetary tightening in developed countries may disrupt capital flows and exchange rates, and fiscal and quasi-fiscal expansion may be more beneficial than simple monetary easing.

　　2. The Fed's “third-in-command” and New York Fed President Williams said that it would be appropriate to raise interest rates in March, but did not see a convincing argument to support a “significant advance” in March. The Fed governor and prospective No. 2 figure, Brainard, also believes that the March meeting is appropriate to raise interest rates. Chicago Fed President Evans said monetary policy was built on the wrong foundation and needed a huge adjustment.

　　Interpretation: On Friday, several senior officials of the Federal Reserve delivered speeches, and Wall Street's news was summarized. Highlights include: Fed's “third-in-command” New York Fed President Williams said a rate hike in March would be appropriate, but did not see a convincing argument for a “significant advance” in March. The Fed governor and prospective No. 2 figure, Brainard, also believes that the March meeting is appropriate to raise interest rates. Chicago Fed President Evans said monetary policy was built on the wrong foundation and needed a huge adjustment. On Friday, a number of top Fed officials spoke, and Wall Street was rounded up. Highlights include: Fed's “third-in-command” New York Fed President Williams said a rate hike in March would be appropriate, but did not see a convincing argument for a “significant advance” in March. The Fed governor and prospective No. 2 figure, Brainard, also believes that the March meeting is appropriate to raise interest rates. Chicago Fed President Evans said monetary policy was built on the wrong foundation and needed a huge adjustment. Fed Governor Brainard said the central bank is ready to raise interest rates next month and begin shrinking its balance sheet at its next meeting. “Given the pretty strong data we've seen, I expect it would be appropriate to start a series of rate hikes at the next meeting.” The rate hikes and shrinking of the Fed's balance sheet will reduce inflation over time, and the market has moved in sync with that. Changes in mortgage and loan interest rates are passed on to the real economy, while credit conditions for loans are also tightened. So we've seen austerity facing households and businesses, which is consistent with the economic outlook.

　　3. The total number of existing home sales in the United States in January increased by 6.7% year-on-year to 6.5 million units, which greatly exceeded Wall Street's expectations. At the current rate of home sales, the supply could last for about 1.6 months, an all-time low in the data.

　　Interpretation: On Friday, the total number of existing home sales in the United States rose 6.7% on an annualized basis to 6.5 million units in January, according to the National Association of Realtors (NAR), which greatly exceeded Wall Street expectations. Existing home sales fell 2.3% in January from a year earlier. By region, sales in all regions increased in January. Existing-home sales unexpectedly rose to a one-year high as buyers flocked ahead of a surge in mortgage rates. During that time, the average interest rate on a 30-year fixed loan was about 3.2%. Now it's just over 4%, according to Mortgage News Daily. That added to an already tight inventory, with the number of homes for sale falling to an all-time low of 860,000 in January, down 2.3% from December and 16.5% from a year earlier. At the current rate of home sales, the supply could last about 1.6 months, which is also an all-time low in the NAR data. Realtors see any supply below five months as a sign of a tight market. Buyers may be anticipating further rate hikes and locking in low rates, with investors adding to overall demand with all-cash offers. Whether rising interest rates will dampen housing demand largely stems from the demographic boom of young households of buying age. Our expectation is that throughout 2022, we will continue to see home sales at relatively high levels as post-pandemic shifts, such as increased workplace flexibility, allow potential buyers to expand their search, And find an affordable place to settle down. The percentage of all-cash deals rose to 27% from 19% a year ago. Part of that could be due to the fact that the share of investors has risen to 22%, up from 15% a year ago. Investors are really emerging, which may be is the reason we've seen home sales go viral. Tight supply and strong demand pushed the median existing home price to $350,300, up 15.4% from January 2021. Sales growth in January came almost entirely from prices in the 50s Homes over $10,000, and the recent spike in mortgage rates could dampen future demand. The low-priced home market is the tightest in supply. Homes priced between $100,000 and $250,000 are more for sale than a year ago Down 23%, while sales of homes priced between $750,000 and $1 million rose 33%. Sales of homes priced above $1 million rose 39%. Because there is very little existing supply of homes for sale , buyers are turning more to new construction. Unfortunately, builders have not kept up with demand due to slow production due to high commodity prices, shipping delays and labor shortages.

　　Outlook

　　The trend of the RMB last week was basically in line with our previous expectations, except that the highest point of 6.3247 was slightly higher than the highest point of our weekly report of 6.43. The strength of the RMB since the beginning of the year may have exceeded the expectations of most market participants. We believe that market participants did not judge this round of RMB atypical rises. There are two main factors. First, the pessimistic long-term expectations for the RMB throughout the year are reflected in the short-term market. Second, there is no sufficient expectation for the booming domestic and foreign trade since the beginning of the year. The sellers have added help, which also confirms the general idea of “the epidemic does not stop and the rise is endless” that we mentioned in the past 20 years. After 2 weeks of adjustment, the US index has entered a weak cycle in the short-term, while the weekly and monthly lines have not been affected for the time being. To maintain the previous judgment, the US index will continue to be in a weak order near 96, and may face greater pressure this week; After approaching the top of 6.32, the central bank has lowered the midpoint in the last two days. However, considering the actual foreign trade situation and the exchange rate difference between the two places, we expect that the RMB is expected to continue to strengthen in the short term. The resistance of CNY testing 6.32 should be in the short term. This week fluctuated 6.30-6.35.

　　Data source: Wind Hong Kong Treasury Market Association Henghua International R&D Center

　　The short-term overseas discount is domestic, and the long-term premium is higher, while the forward spread between the two places continues to narrow.

　　Data source: Wind Henghua International R&D Center

　　Spot trading volume of important currency pairs of RMB in November

　　Data source: Wind Henghua International R&D Center

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