【HGNH RMB Weekly】

　　Market trend

　　The central parity rate of the US dollaragainst the RMB was reported at 6.3288 on Friday (March 4), and the centralparity rate of the RMB was lowered by 58 pips compared with last week (February25). 47pips and up 158pips. As of 5:00 pm on Friday, the domestic and foreignRMB spot and 1-year forward spreads were -32pips and 56pips respectively.EUR/RMB was quoted at 6.8953, GBP/RMB at 8.3535, RMB/JPY at 18.2151, andHKD/RMB at 0.8081, depreciating 2091pips, 1117pips, 852pips and 11pipsrespectively compared to last week.

　　In terms of funds, on March 7, the centralbank announced that in order to maintain reasonable and sufficient liquidity inthe banking system, on March 7, a 7-day reverse repurchase operation of 10billion yuan was carried out by way of interest rate bidding, and the winningrate was 2.10%. Wind data shows that 300 billion yuan of reverse repurchaseexpired today, so a net 290 billion yuan was withdrawn that day. Wind datashows that 380 billion yuan of reverse repurchase will expire in the centralbank's open market this week, of which 300 billion yuan, 50 billion yuan, 10billion yuan, 10 billion yuan, and 10 billion yuan will expire from Monday toFriday. In terms of funds, after the central banks net withdrawals in the openmarket for several days, the funds in the inter-bank market began to convergelast Friday, and the supply of repurchase rates increased intermittently. Amongthem, it rose by more than 15bp overnight to around 1.89%, and was moreweighted. Add points to the price based on the transaction. Among the long-termfunds, the one-year inter-bank certificate of deposit issuance price has alsorisen, and the latest concentration is 2.59%. The government work reportproposes to focus on stabilizing the macroeconomic market this year and keepthe economy operating within a reasonable range. Strengthen the implementationof prudent monetary policy. Give full play to the dual functions of monetarypolicy tools in aggregate and structure to provide stronger support for thereal economy. Expand the scale of new loans, keep the growth rate of moneysupply and social financing scale basically in line with the nominal economicgrowth rate, and keep the macro leverage ratio basically stable. Keep the RMBexchange rate basically stable at a reasonable and balanced level. Furtherunblock the monetary policy transmission mechanism, guide more funds to flow tokey areas and weak links, and expand the coverage of inclusive finance.Encourage financial institutions to reduce the actual loan interest rate andreduce fees, so that the majority of market players can feel the convenience offinancing and the reduction of comprehensive financing costs. Regarding theliquidity outlook in March, CITIC Securities said that there was basically noliquidity gap in March (excluding the maturity of MLF and reverse repurchase),but under the goal of stable growth, the deterministic signal of economicrecovery has not yet appeared, monetary policy The easing window is still notover. At the end of February, the volatility of overnight interest ratesincreased, and the short-term liquidity in the market was relatively tight,which may be related to factors such as tax payment and standard payment.Whether judging from the logic of the current economic improvement analysispolicy or the actual operation of the central bank at the end of the month, itproves that the current monetary policy is still in a loose window period, andthere is still a high probability of reducing the reserve ratio in the next twomonths. However, in March, more stable growth statements and measures may beintroduced one after another, which is expected to trigger the adjustment ofthe market's expectations for relaxed credit and amplify interest ratefluctuations. It is recommended to seize the opportunities in the bond marketafter the adjustment. The central bank held a teleconference onmacro-prudential management work in 2022, calling for further improvement ofthe dual-pillar regulatory framework of monetary policy and macro-prudential policy,giving full play to the functions of macro-prudential management focusing onmacroeconomics, counter-cyclical adjustment, and preventing risk contagion, andpromoting the implementation of the macro-prudential policy framework. ,strengthen systemic risk monitoring, evaluation and early warning, form astandardized monitoring and evaluation system, implement additional supervisionof systemically important banks in an orderly manner, and establish and improvethe evaluation and supervision framework for systemically important insurancecompanies.

　　Interpretation of key data and events

　　1. The manufacturing PMI in January andFebruary rose by 0.1ppt month-on-month to 50.2%, higher than the medianforecast of Bloomberg (49.8%). The month-on-month increase in PMI in Februarywas higher than that in February 2019, which was similar in seasonality.Looking ahead, as the first round of stabilization effects brought about by theeasing of supply-side constraints such as power and production restrictionsgradually subsides, the recovery of demand under the support of policies willbe the main driving force for the expansion of the manufacturing industry inthe future.

　　Interpretation: The in-situ Chinese NewYear pushes production to fall less than seasonally. The production componentfell 0.5ppt month-on-month to 50.4%, a smaller decline than the seasonallysimilar 1.4ppt in February 2019. This is mainly due to the fact that under thebackground of the local New Year, the production situation of manufacturingenterprises during the Spring Festival fell less than the same period inhistory. The month-on-month changes in employees, raw material inventories, andsupplier delivery times were also better than those in February 2019, which wasin line with the fact that manufacturing production and operation activitiesduring the Spring Festival during the Spring Festival were closer to “normal”than in previous years. The former two support the overall manufacturing PMI,while the latter has a marginal downward pressure on the overall manufacturingPMI. Under the support of the policy, the demand expansion is super-seasonal.The new orders segment rose 1.4ppt to 50.7% month-on-month, ending a six-monthcontraction period. The month-on-month increase was higher than the 1.0ppt inFebruary 2019. Among them, new export orders rose by 0.6ppt MoM to 49.0%,reflecting that domestic demand expanded faster than external demand. Themonth-on-month increase in new export orders was also higher than seasonality,indicating that external demand momentum is still strong. Structurally, newkinetic energy industries performed better. High-tech manufacturing andequipment manufacturing PMIs rose by 1.2ppt and 1.1ppt month-on-month to 53.1%and 51.4%, respectively, while the seasonally similar February 2019 both roseby 1.8ppt and 1.1ppt month-on-month, respectively. 0.6ppt to 51.4% and 50%. Amoderate advance in infrastructure has begun to appear. The constructionbusiness activity index increased by 2.2ppt month-on-month to 57.6%, while thebusiness activity index of the construction industry in February is usually amonth-on-month decrease. In other sub-items of the construction industry, neworders, business activity expectations, and employees increased by 1.8ppt,1.6ppt, 6.6ppt, to 55.1%, 66%, and 55.8%, respectively, and the overallsuper-seasonal increase, showing that the infrastructure is moderately ahead ofschedule. The effect has already begun to show. However, there are still someconcerns about the recovery of the manufacturing industry. First, the operatingpressure of small enterprises is still great. In terms of scale, the PMI oflarge and medium-sized enterprises rose, while the PMI of small enterprisesfell by 0.9ppt month-on-month to 45.1%. Second, the price pressure is rising again.The purchase price and ex-factory price of major raw materials increased by3.6ppt and 3.2ppt mom to 60% and 54.1% respectively. The geopolitical conflicthas exacerbated the already tight supply and demand situation of some bulkcommodities, and the two price indexes of petroleum, coal and other fuelprocessing, non-ferrous metal smelting and rolling processing industriescontinue to be in the high range of over 60.0%. Third, the service industry isstill affected by the epidemic. In February, the daily average number of newpositives in the local area declined, and the service industry businessactivity index edged up by 0.2ppt month-on-month to 50.5%. However, theabsolute level of 50.5% is still far behind the same period of previous years,indicating that the service industry continues to be negatively affected by theepidemic. Among them, the business activity indexes of retail, ecologicalprotection and environmental governance, and residential services are in thelow range below 45.0%.

　　2. Under the high base, the industrialadded value may decrease year-on-year. The manufacturing PMI in January andFebruary were 51% and 51.2%, respectively, and the steady state of themanufacturing industry was further revealed. In particular, the month-on-monthincrease in PMI in February was higher than that in February 2019, which wassimilar in seasonality. We believe that there are two main driving forcesbehind it. One is that the local New Years Eve makes the production fall lessthan the seasonality, and the other is that the demand expansion exceeds theseasonality. . From the perspective of high-frequency data, the dailyconsumption of power plants in the eight coastal provinces was -4.9% and 10.2%year-on-year in January and February (-7.8% in December 2021), while thecumulative year-on-year growth rate of power generation from the beginning ofthe year to mid-February was 7.7% (0.4% in December 2021). Considering the highbase of industrial value added in January-February 2021, we expect industrialvalue added in January-February 2022 to be +3.8% yoy (4.3% in December 2021).

　　Interpretation: From January to February,the cumulative year-on-year growth rate of fixed asset investment may be 4.1%(the previous value was 4.9%). Affected by the lag of factors such as PPI,exports, profit-driven, and high capacity utilization, combined with the lowbase in January-February 2021, the year-on-year growth rate of manufacturinginvestment may be higher, supporting the overall fixed asset investment. In thefirst two months, the year-on-year growth rate of generalized infrastructureconstruction may turn positive, but the recovery will not be completed untilMarch. In the first two months, nearly 880 billion yuan of new local specialbonds were issued, superimposed on the unused fiscal funds last year. However,judging from the construction steel transaction volume and cement productioninventory data in the first two months, it will take time for the demand forthe construction side to recover. We believe that it may be mainly related tofactors such as the low temperature in the north in February and the holding ofthe Winter Olympics, and the effect of the stabilizing growth policy may beAccelerated results in March. We expect that the year-on-year growth rate of generalizedinfrastructure in the first two months may turn positive, at around 2%, ofwhich investment in the power industry may be an important driving item. Interms of real estate, sales were weak. From January to February, thetransaction area of commercial housing in 30 cities was -28.7% year-on-year,which was further worse than the -21.9% in December. According to the lunarcalendar, the 30 days after the festival was -37% year-on-year, compared withthe 30 days before the festival. -24% further deteriorated. The first-,second-, and third-tier sales areas all saw a year-on-year negative growth, andthe third-tier declines were even greater. The negative year-on-year increaseof 200 billion yuan in mortgages in January also indicated that the demand forhousing was weak. Land acquisition is also more cautious. The transaction areaof land in Baicheng was -45.4% year-on-year, and the first-, second-, andthird-tier land fell by -64%, -40%, and -38% respectively. Affected by the highbase, the main indicators of real estate from January to February may all fallby double digits year-on-year, the sales area may expand to -20% year-on-year(previous value -15.6%), and development investment may decline by 15%year-on-year (previous value -13.9%). %). The marginal adjustment of epidemicprevention and control will help consumption moderately improve. Before theholiday, the government proposed “five musts” for implementing theepidemic prevention policy. In February, the National Development and ReformCommission and other departments jointly issued a notice to propose “fourprecisions” and “three nos”, all of which aim to reduce theeconomic impact of epidemic prevention and control. Judging from the data ofthe Spring Festival holiday, the number of passengers sent during the SpringFestival travel increased by 21.8% year-on-year, and the median growth rate ofthe Spring Festival consumption in 18 provinces was around 8.5%. Overall, theperformance was acceptable. However, the suppression of the epidemic has notbeen lifted, and consumption such as tourism and movie viewing is stillsignificantly lower than before the epidemic; the growth rate of residents'income has declined since the second half of last year, which may also be adrag on consumption. We expect that consumption will be more supported by themarginal adjustment of the epidemic prevention policy. It is expected that thetotal retail sales of consumer goods in January-February will increase by about6% year-on-year, corresponding to a compound growth rate of about 4.1% in thebase period of 2019, which is better than that at the end of last year. Exportmomentum is still strong. The United States and Europe have recovered from theimpact of the epidemic. Although Japan and South Korea are affected by theepidemic, we expect that the impact on China's foreign demand will be small.The global manufacturing PMIs in January and February were 53.2% and 53.6%,respectively, and the service PMIs in the United States and Europe were 56.7%and 55.8% in February (51.2% and 51.1% in January). In January-February, SouthKoreas imports from China increased by 19% year-on-year (26% year-on-year inDecember 2021). We expect exports to be 18% year-on-year in January-February(21% in December 2021), imports to be 19% year-on-year (19.5% in December2021), and a trade surplus of US$108.7 billion. The conflict between Russia andUkraine continues to escalate. In February, PPI may slightly increase to 9.5%year-on-year (previous value 9.1%), cost transmission may lag, coupled withweak pig prices, the Spring Festival dislocation has driven down some serviceprices year-on-year, and CPI year-on-year may remain the same as last month.0.9%. In terms of PPI, the escalation of the conflict between Russia andUkraine drove oil prices soaring. International oil prices rose above$110/barrel on March 2. Driven by oil prices, copper and aluminum prices alsorose, maintaining a high year-on-year level; domestic thermal coal prices rosemoderately, but due to the same period last year Affected by the low base, itmay rise to 48% year-on-year from 4% in the previous month; under theexpectation of the advance of infrastructure construction, the price of rebarrebounded slightly; the marketization of electricity may continue, and theprice of electricity may continue to rise year-on-year. The ex-factory price ofPMI industrial products indicates that the PPI may be around 0.6%month-on-month, while the high-frequency data shows that it may be higher. Weexpect the PPI in February to be higher year-on-year or higher than theprevious month. In terms of CPI, under weak demand, pork prices remained weakin February. The average wholesale price of pork by the Ministry of Agriculturefurther expanded to 53.5% year-on-year. The price of aquatic products also fellyear-on-year, and the price of vegetables rebounded slightly year-on-year. Thedecline in early costs may continue to drive non-food consumer goods. Priceshave slowed down. Under the dislocation of the Spring Festival, the prices oftourism, rent, and housekeeping services may fall year-on-year, and the CPI maybe flat year-on-year at the low level of the previous month. Bond financing maydrive the growth of social financing to continue to rise, and credit will riseslightly. The net issuance of government bonds in February was 349 billionyuan, a sharp increase from 46.3 billion yuan in February 2021; meanwhile, thenet financing of credit bonds reached 314.9 billion yuan in February, up from102.7 billion yuan in the same period last year. The above two items togetherare expected to boost social financing by nearly 500 billion yuan year-on-year.At the same time, bill interest rates fell significantly at the end ofFebruary, and banks may increase credit through bill impulses. New credit inFebruary is expected to be 1.6 trillion yuan, an increase of 200 billion yuanyear-on-year. To sum up, we estimate that the new social financing in Februarywill be 2.4 trillion yuan, and the year-on-year growth rate will furtherincrease to 10.7%; the M2 growth rate may drop slightly to 9.4%.

　　3. The US non-farm payrolls data inFebruary far exceeded expectations, the largest increase in July last year. Thelabor market remains strong as the unemployment rate continues to improve andthe Federal Reserve prepares to raise interest rates.

　　Interpretation: US non-farm payrolls datain February far exceeded expectations, the largest increase in July last year.The labor market remains strong as the unemployment rate continues to improveand the Federal Reserve prepares to raise interest rates. The unemployment ratecontinued to improve. The unemployment rate in February recorded 3.8%, whichwas better than the market expectation of 3.9%, and was the lowest sinceFebruary 2020. The previous value was 4%. The increase in hourly wages was lessthan expected. The average hourly wage in February increased by 5.1%year-on-year, which was less than the market expectation of 5.8%, and theprevious value was 5.7%. The labor force participation rate rose slightly, risingto 62.3% in February, which was better than market expectations of 62.2% andthe previous value of 62.2%. In terms of unemployment, among major workergroups, the unemployment rates for adult males (3.5%) and Hispanics (4.4%)declined in February, and the Hispanic unemployment rate has returned topre-pandemic levels. Unemployment rates for adult women (3.6%), teens (10.3%),whites (3.3%), blacks (6.6%) and Asians (3.1%) were little changed over themonth. On the industry front, the U.S. Bureau of Labor Statistics said thegeneral increase in employment in February was driven by gains in leisure andhospitality, professional and business services, health care and construction.In terms of unemployment, among major worker groups, the unemployment rates foradult males (3.5%) and Hispanics (4.4%) declined in February, and the Hispanicunemployment rate has returned to pre-pandemic levels. Unemployment rates foradult women (3.6%), teens (10.3%), whites (3.3%), blacks (6.6%) and Asians(3.1%) were little changed over the month. On the industry front, the U.S.Bureau of Labor Statistics said the general increase in employment in Februarywas driven by gains in leisure and hospitality, professional and businessservices, health care and construction.

　　Outlook

　　The volatility of various currency pairs,except for the direct trading of the RMB, increased significantly last week,mainly because the US dollar rose last week to a new high in nearly a year.Especially remember that in October last year, after the US index reached thefirst target position of 95 given by us at the beginning of last year, we gavethe second target position of 99. As of the morning of the 7th, the US indexonce rushed above 99 in the intraday. This time, the US index rushed to the 99mark, and the conflict between Russia and Ukraine helped a lot. As a result,even the NFP, which exceeded market expectations on Friday, could only play asupporting role. In terms of spot RMB, the relationship between changes in thecentral parity rate since Wednesday and overnight fluctuations has beensignificantly weakened. The daily volatility of the central parity last weekwas 1276BP, while the daily volatility of the onshore RMB as a reference wasonly 236BP. In particular, the central parity on Wednesday and Thursday has theweakest relationship with the overnight closing price. The detailedinterpretation has already been mentioned in the short message on Wednesday, soI won't repeat it here. The central parity rate last Friday and Monday thisweek was significantly lower than our central parity model. The central bankseems to be pressing the “pause button” for this round of RMBappreciation, but it may be too early to say “countercyclicalfactors”. From a technical point of view, the US index continues to beoverweight in each cycle. This week, we will focus on whether it can hold 99.The third target of the US index is around 103. In terms of RMB, the pressureon foreign exchange settlement has increased significantly, but the centralbanks intention to guide the central parity upward is also relatively high.Obviously, from a technical point of view, the RMB may face certain pressure inthe short term, but it is still on an upward trend over the week.