The first quarter GDP exceeded expectations with a growth of 5.3%. Why do ordinary people feel it isn't good? Is the Asian financial crisis about to return? Why is the US economy still thriving? Zhu Bajie's macro analysis for April will guide you through the global macroeconomic trends.
First, the domestic sector released the CPI data for the first quarter in April. From the graph, we can see the fluctuations in January, February, and March data this year. Some people noticed a significant decline in March data and thought the economy was collapsing, but this was actually caused by the disturbances from the Spring Festival in 2023 and 2024 occurring in different months. Therefore, comparing quarterly data would be more accurate. The year-on-year CPI growth for the first quarter of 2023 and 2024 is 0%, and the year-on-year data for the last quarter of last year was -0.3%. Overall, it appears to be gradually shifting from negative to positive. Starting from the second half of last year, domestic consumer spending gradually entered a deflation stage. Based on the data from the first quarter of this year, although there is some alleviation, it can only be described as stabilizing at a low level. Currently, in my observation, there is a K-shaped differentiation in Chinese consumer spending. There is a noticeable reduction in large-scale purchases, primarily due to the downturn in the real estate market, which has led to sluggish consumption across the entire real estate chain. However, consumption in smaller categories such as dining, tourism, and beverages has shown considerable growth. This graph also indicates that the categories with significant year-on-year growth are primarily small-scale consumption, which may have substantial reference value for secondary market trading. Speaking of tourism, the data for the Qingming Festival in April was impressive, with a more than double increase in the volume of people compared to the same period in 2019. From this graph, we can also see that the tourism industry has overcome the shadow of three years of black swan events and is back on a growth track. Coupled with the K-shaped differentiation in domestic consumption we just mentioned, there is a certain investment value in the tourism sector from a long-term perspective. The domestic stock market also began a wave of speculation on tourism concepts in mid to late April, which had already raised expectations for a bright May Day tourism season. However, caution is advised for profit-taking soon after. GPI data has been stagnant for several months, and it is unlikely to see significant improvement in the short term. Looking directly at the overall situation for the first quarter, the GDP data for this year was released in April, showing a year-on-year growth rate of 5.3%. Our annual target is 5%, so this data indeed exceeded expectations, and 5.3% growth is currently among the highest globally. But why do many people around us feel that they haven’t sensed the strength of this growth and still haven’t made much money this year? We can find the answer by breaking down GDP. Firstly, the primary industry of agriculture, forestry, animal husbandry, and fishery only grew by 3.3% in the first quarter, which is below the total increase of 5.3%, and we can see that the growth rate has been declining year by year. Those engaged in this industry account for over 20% of the total workforce, primarily from the lower strata of society, so their poor perception of economic growth is objectively caused by the weakness in industrial growth. The secondary industry, which contributed mainly to growth, grew by 6% in the first quarter. Behind the impressive data is industrial differentiation. By observing the relationship between copper prices and steel frames, we can gauge the heat of the construction and manufacturing industries. Currently, China's construction industry is stagnant due to the real estate crisis, but the manufacturing sector, especially in the eastern coastal areas focusing on exports of electronic appliances and automobiles, has shown significant recovery this year, with some upstream equipment manufacturers even experiencing explosive orders. The latest PMI data also further supports the above conclusions. These hot manufacturing sectors are the underlying reasons supporting the 6% growth in the secondary industry. Moreover, while real estate in the construction sector remains frozen, infrastructure is still benefiting from various special bonds and project bonds issued by the central government since the second half of last year. This has allowed the construction industry to limp along, with one leg still able to walk, ultimately not dragging down the bright growth of the secondary industry too much. However, as mentioned earlier, currently, only a small portion of the manufacturing industry is thriving, and only a few within that industry are secretly making money, while the vast majority of workers in the secondary industry are not benefiting from this growth. This results in a situation where, despite a 5.3% economic growth in the first quarter, wages have not increased. Whether manufacturing can fully recover in the future remains to be observed, but this new normal of a half-fire, half-water situation may persist for a long time. Additionally, a reminder for everyone: the central government's special bond and project bond dividends that were mentioned earlier have already been gradually disbursed. After the beginning of this year, the central government has noticeably reduced the issuance of bonds, and the infrastructure sector, which is still able to walk, may gradually lose its source of blood transfusion in the second half of this year. Therefore, even though the GDP performed well in the first quarter, everyone should not be overly optimistic. Before the global tightening cycle ends, our economy may not see significant improvement. Finally, regarding the tertiary industry, what was the first quarter growth? It was 5%. From the graph alone, there isn’t much to see, but when combined with electricity consumption data, it becomes more interesting. In the first quarter, the electricity consumption of the tertiary industry increased by 14.3%. The first industry grew by 9.7%, and the second industry grew by 8.0%. It can be observed that while the electricity consumption of the service industry grew by 14.3%, its output value only grew by 5%, indicating that the growth in electricity consumption far exceeds its output value. Similarly, the first industry has a similar issue, which shows that people are still striving to produce, open shops, and run businesses, but they are not making much money. There are many people busy for no reason, and not only are people busy for no reason, but money also isn’t flowing to where it should go. According to the central bank’s data, as of March this year, China’s broad money supply has surpassed 300 trillion yuan for the first time, with M2 and M1 growth rates still at historically high levels. Too much money flowing into banks on fixed-term deposits has continuously prompted the state to actively lower deposit interest rates multiple times over the past two years. Currently, the 10-year government bond rate is 2.26%, but in March, the central bank stopped lowering interest rates. In contrast, the 10-year government bond rate shows no signs of rebounding; the 2.26% rate has been a low point in over ten years, and after a substantial decline, it hasn't rebounded at all, which is rare in the history of government bond trading. The market's reaction tells us a lot of information, but for specific deductions regarding the bond market, the interest rate for newly issued personal housing loans has also reached 3.71%, down 0.15% from the previous month and down 0.46% compared to last year, currently at an absolute historical low and has further room for decline. However, even with interest rates at such levels, the real estate market remains half-alive, and the first-hand housing market is particularly affected. From this long-term view, we can see that the sales of the top 50 real estate companies in the first quarter fell sharply year-on-year, and suddenly this year, no one is buying new houses, leading many real estate companies into a vicious cycle of difficulty in cash collection and credit rating downgrades. The first-hand housing market indeed requires support from the national level for the major real estate companies that have reached the brink of survival; otherwise, there is a possibility of systemic risks erupting, which cannot be ignored. Currently, the excess money supply has nowhere to go. Previously, it could flow into real estate to preserve value and appreciate, but now real estate has been abandoned. The question of where the new reservoir, or the next real estate, is, is something everyone is concerned about. This has also led to the frenzy of gold trading domestically over the past two months, where gold prices in March and April reached record highs amid the background of declining expectations in the United States. The final prediction from the top ten predictions video is that bonds and gold will outperform the market this year. Currently, both government bond futures and gold prices have reached new highs. Although there is still more than half a year left, this outcome is highly likely. Gold has now broken away from traditional pricing logic; previously, gold was negatively correlated with the dollar, meaning that rising US interest rates led to an increase in the dollar's value, which in turn suppressed the price of gold, an asset that does not generate interest. However, despite the current high-interest rate environment in the US, gold has surprisingly risen in tandem with the dollar's increase in March and April, primarily due to a decline in global confidence in the dollar. Over the past three years, central banks worldwide have continuously increased their gold reserves, with an annual growth rate of 1.9%, and China has increased its gold reserves for 17 consecutive months. Coupled with the waves of regional conflicts, the safe-haven attribute of gold has been activated, making it difficult for gold prices to adjust downward from high levels. The continuously rising international gold price has also stimulated the nerves of domestic investors, as a large amount of accumulated currency seems to have found a place to go, leading to a dramatic increase in domestic gold prices far exceeding international levels. The nationwide rush to buy gold reminded me of the previous nationwide rush to buy houses. But can gold become the new reservoir? Clearly not, as gold's supply is not monopolized, so it cannot be priced by the government like housing. The excess profits may ultimately be earned by small players who transport gold overseas into the domestic market daily. The frenzy of speculation in gold is detrimental to the government, so gold will never be able to become a signed reservoir like real estate. Recently, many places have begun to introduce policies to restrict speculation. For example, Shenzhen has started requiring real-name registration for gold transactions exceeding 20,000 yuan, and the Shanghai Futures Exchange has implemented trading limits for gold futures, etc. Now, for a specific judgment on the future trend of gold.
After discussing the domestic situation, let's talk about the international level. The most notable event in the global economy in April was on April 5th when the US Labor Department released that non-farm payrolls increased by 303,000 in March, a figure that greatly exceeded market expectations. Although this has been the case for recent months, this time it cooled market expectations for interest rate cuts significantly, leading to a sharp decline in a wave of interest rate-sensitive assets, particularly in the stock markets of countries outside of Europe and the US and their exchange rates against the dollar. This triggered a lot of foundational logic in the domestic market that the US and China are in conflict, with Japan and South Korea as followers, and bloggers in Southeast Asia were in a collective frenzy, imagining that the US would pressure Japan to raise interest rates and that Japan and the US would jointly harvest Southeast Asia. First of all, the US actually wants to cut rates. Whether from an economic or political perspective, we'll elaborate on this later. Currently, the US cannot cut rates because it fears inflation will rise again, undermining the high interest rates they have maintained for over a year. As for using the dollar to harvest the world, I believe the dollar's status is different from the past. Firstly, it lacks the ability, and secondly, the trust in the dollar has worsened. Simply put, attempting to harvest globally is thankless work. Secondly, are the leaders of Japan, South Korea, and Southeast Asian countries fools? Are their capital markets public toilets? In the 1990s, risk awareness and management were weak, and they suffered losses. Now, in 2024, every country has developed solid emergency plans. As we see, after significant fluctuations in the stock and currency markets of various countries appeared in early April, Japan and South Korea quickly convened a meeting with the US, and the three countries' finance ministries later issued a joint statement, with central banks immediately taking action to intervene in the markets. This wave of short-selling forces has recently gained momentum, and stock and currency markets in various countries have gradually rebounded in the past few days. Although there are profits, it is likely to be without risk. Speaking of Southeast Asia, I want to interject an interesting piece of survey data. The Asian Research Center in Singapore released a report on the situation in Southeast Asia in April, observing the perceptions and trust levels of Southeast Asian intellectual elites towards major countries like China and the US. This survey has been conducted for six consecutive years. The result this year is quite interesting: if forced to choose between China and the US, 50.5% of respondents chose China, and 49.5% chose the US, marking the first time China has surpassed the US as the preferred choice. Laos's preference might be influenced by the benefits of the Belt and Road Initiative, while countries like Malaysia, Indonesia, and Brunei, which have significant Muslim populations, might be affected by the Israel-Palestine conflict. This suggests that China's moderate diplomatic stance is indeed enjoying the benefits amid global confrontation. After discussing Southeast Asia, let's shift our focus to Europe. With Switzerland being the first to sound the horn for interest rate cuts on March 21, the expectations for rate cuts across Europe surged. Many people domestically speculate that Switzerland's rate cut is to cooperate with the US's harvesting strategy, but that is purely conjecture. The world is multipolar; it is not the case that the US controls the entire world. This point must be clarified first. Switzerland's rate cut is entirely from its own perspective, as inflation in Switzerland has returned to normal levels, while economic growth is slightly weak, making the rate cut a normal choice. Similarly, Japan's interest rate hike is primarily based on its own national interests. The graph shows that inflation in the Eurozone has also fallen to around 2%, so in April, Europe began to signal expectations for a rate cut starting in June. With the US economy performing well and inflation being strong, Europe cannot wait for the US to cut rates before it does; after all, the US is not necessarily the one to dictate terms to Europe. Therefore, it is very likely that Europe will cut rates in June. The order of rate cuts we mentioned earlier is first resource-rich countries, then manufacturing countries, and finally consumer countries. Resource-rich Brazil has already been cutting rates for six months, while manufacturing countries like China and Vietnam have not raised rates at all, and now Europe is about to cut rates among consumer countries. The only remaining focus is the highly watched US. The timing mismatch of rate cuts between Europe and the US is an interesting point. From the graph, we can see that Europe has always closely followed the US. Whether this time it will happen differently with Switzerland leading the way is worth paying attention to. Finally, let's turn to the US. As mentioned earlier, the most significant turning point in the economy in April was the 303,000 increase in non-farm payrolls in March. The so-called exceeding expectations has frightened the market, reversing all trades based on expectations of rate cuts, but this employment data is often quietly revised down afterward. The employment report from the Philadelphia Federal Reserve directly points to the Biden administration continuously fabricating employment data, with the Labor Department having revised the 2023 non-farm employment data by 800,000. Why does the US government want to paint a rosy picture? Because this is a presidential election year, and the Republican candidate Trump will face off against the Democratic candidate Biden in a fierce battle. To maintain the success of Bidenomics, the Biden administration must present favorable data. So how is the US economy doing? If I had to describe it in one sentence, it would be prosperity built on bubbles. The March CPI data in the US showed a year-on-year increase of 3.5%, with inflation remaining around 3% for more than six months without declining. As we said last time, part of the factor is the base comparison, while another part is that the US government is still heavily borrowing and spending. Fans who have been following this series may remember that I previously judged that one of the reasons for high inflation in the US is the excess savings of American residents caused by the massive amount of money released during the pandemic, which was basically consumed by the end of last year. So why is inflation still not decreasing? In the first three months of 2024, the US government issued a total of $7.2 trillion in treasury bonds, the largest quarterly total on record, even exceeding the second quarter of 2020 at the start of the pandemic. In the first six months of the 2024 fiscal year, the US deficit also reached $1.065 trillion, the second-highest level on record. This explains why, despite high-interest rates, the US economy remains vibrant; the government borrows heavily and invests, propping up the data with enormous deficits. But recently, US treasury bonds are becoming increasingly difficult to sell; before the rate hike, they relied on the Federal Reserve, and after the hike, they depended on small and medium-sized investors, but now even small and medium-sized investors are not buying. The increase in high-interest rate bonds is also driving up the cost of interest payments. How long can the US government continue to spend so freely? The US government knows that such actions are overdrawn on the credit of the dollar; then why do they still do this? Once again, it's about the election year; all economic factors must serve political factors, and Biden must showcase the success of Bidenomics over the past four years. We can see how Biden responded after the March non-farm employment report, stating that three years ago, the economy he inherited was on the brink of collapse, and today's report shows an increase of 303,000 jobs in March. We have crossed the milestone of creating 15 million jobs since I took office. You all understand this logic. Let's also examine why Treasury Secretary Yellen is visiting China at this time. On the surface, it is said to discuss China's overcapacity issues, but when we look at Yellen's agenda, it seems more about meeting our finance minister, central bank governor, and arbitration office director, which strays a bit from the topic of overcapacity. Even Bloomberg, which usually criticizes the US, has published articles questioning this, indicating that the surface excuse is indeed a bit implausible. As for what Yellen really wants to discuss and the outcomes of those discussions, since it may involve some names, we will discuss that in the plus version. Here, I want to emphasize that in mid-May, we will release significant content about the divided US and the infighting within the Federal Reserve, taking you into the reality of a political thriller. I will focus on analyzing Yellen, so interested fans remember to follow this account. Finally, let's briefly analyze the potential for interest rate cuts by the Federal Reserve. Currently, there are factional attributes within the Federal Reserve that complicate economic operations like rate cuts, with many political and social factors at play. However, it is certain that in the upcoming quarters, the US government's borrowing will decrease. To maintain economic prosperity, the Federal Reserve will need to cooperate with rate cuts, so as the elections approach, pressure from Biden will become stronger. September is the first critical point, as presidential candidates will begin debates and the official election will occur in November. Therefore, before that, it would be best for the Federal Reserve to start cutting rates.