The liquidity premium is the price mapping of the market to the current liquidity tightness;
Liquidity expectations are the market's expectations for the tightness of long-term liquidity.
1. Equity: Market sentiment continues to improve broadly, and valuation has not yet reached the time of prosperity and pricing
In the third week of June, the A-share market continued its independent market, with strong shocks. Wind closed up 1.76% in all A, and consumer stocks, growth stocks, financial stocks and cyclical stocks rose by 2.93%, 2.23%, 1.25% and 1.00% respectively. Both large-cap and mid-cap stocks recorded gains, with large-cap stocks (SSE 50 and CSI 300) and mid-cap stocks (CSI 500) up 1.26%, 1.65% and 1.22%, respectively (see Figure 1).
In the third week of June, the pendulum of sentiment continued the improvement since May, and the current trading congestion is still at a historically low level. The short-term crowding degree of growth stocks, consumer stocks and financial stocks is not very different, and the short-term crowding degree of cyclical stocks is higher (39% quantile). There is little difference in short-term crowding between large-cap stocks (SSE 50 and CSI 300) and mid-cap stocks (CSI 500).
In the third week of June, the average crowdedness quantile of the 30 industries rose to 34% (26% last week), and the short-term profit-loss ratio remained high. Industries with transaction congestion above the neutral level include coal (94% quantile), petroleum and petrochemicals (73% quantile), automobiles (70% quantile), transportation (70% quantile), and non-ferrous metals (57% quantile) quantile), building (51% quantile). In the follow-up, if more and more industry congestion returns to above neutral, we need to pay attention to the industry's prosperity. At the current position, sentiment recovery is still the main logic of the market.
In terms of valuation, the current valuation level of Wind All A is in the [cheap] range (see Figure 2). The valuations of the Shanghai Stock Exchange 50 and the CSI 300 are at the [cheap] level, the risk premium of the CSI 500 continues to fall, and the valuation is at the [cheap] level. Financial valuations remain [very cheap] (91% quantile), cycle valuations [very cheap] (92% quartile), growth valuations [cheap] (88% quartile), and consumption valuations [relatively cheap] ( 60% quantile). The order of risk premium from high to low is: cycle>financial>growth>consumption.
In the third week of June, the inflow of foreign capital continued to accelerate, with a weekly net inflow of northbound funds of RMB 17.404 billion, with Kweichow Moutai, Yili and TBEA leading the way. The net inflow of southbound funds was HK$19.557 billion, the risk premium of the Hang Seng Index rose, and the price-performance ratio was relatively high.
2. Bonds: The historically low
In the third week of June, there was no net investment in the central bank's open market operations, and the issuance of special bonds was still accelerating, but the price of funds remained stable, and the liquidity premium remained at a historically low level (6% quantile), which continued to be at the "very loose" level. . Medium- and long-term liquidity expectations remain at a historically high level (90%), and the market has strong expectations for future liquidity tightening. There is a significant contradiction between the two, and the short-term interest rate is vulnerable. It is necessary to pay attention to exchange rate risks, inflation risks, credit risks and other catalysts that may trigger the rapid correction of the liquidity premium.
In the third week of June, the term spread continued to decline and was at a mid-to-high position (72% quantile), and the duration strategy was more cost-effective. The credit premium continued to fall, at a historically low level (9% quantile), the rate of spread between medium and low ratings narrowed rapidly, the valuation of high-rated credit bonds was expensive (the credit premium remained at the 15% quantile), and the valuation of low- and medium-rated credit bonds was expensive. The value is extremely expensive (the credit premium falls to the 3% quantile), the rating spread remains at a historically low level, and the cost-effectiveness of credit sinking is extremely low.
In the third week of June, sentiment in the bond market was positive. The short-term trading congestion of interest rate bonds was the same as last week, and is currently maintained at a mid-to-high level (63% quantile). The short-term trading congestion of the CSI Convertible Bond Index is still in the upward channel (77%). Short-term trading congestion in credit bonds fell for two weeks in a row, above the median (54% quantile).
3. Commodities: Gold’s best time is yet to come
Energy products: At present, the northern hemisphere is still in peak demand season, and the demand side has strong support for oil prices. Whether the subsequent oil price can reverse, the supply side still needs strong bearish support. The OPEC production attitude after Biden’s visit to Saudi Arabia is more critical, and the current round of production reduction agreement expires in August. In the third week of June, Brent oil prices fell from a high level, down 6.82% from last week to $113.61 per barrel, and the 10-year breakeven inflation expectation fell slightly to around 2.6%. The U.S. crude oil capacity utilization rate has increased, and the output has increased from last week (12 million barrels per day), and crude oil inventories (excluding strategic reserves) have continued to rise and remain at a low level.
Base metals: In the third week of June, LME copper closed down 5.28% and recorded $8,949/ton. The non-commercial position crowding of COMEX copper fell sharply again (32% quantile), and the market continued to price in recessionary trades. Most base metal prices fell, with Shanghai aluminum down 3.74% and Shanghai nickel down 8.59%.
Precious metals: Under the contradiction of rising interest rate expectations and recession expectations at the same time, the performance of gold fluctuated, and we believe that the best time has not yet come. In the third week of June, the spot gold price in London fluctuated down 1.67% to close at $1,840. The crowdedness of non-commercial holdings of COMEX gold continued to rise to 68%, and the market sentiment was neutral to positive. Total gold holdings in the world's largest gold-backed ETF-SPDR edged up, staying at the highest level since last March.
In the third week of June, the risk premiums of agricultural products, energy chemicals and industrial products were all at historically low levels, and their valuations were [expensive].
4. Exchange rate: The major central bank policies are divided, and the US dollar index remains strong
In the third week of June, the U.S. dollar index closed up 0.64% at 104.67. The euro fell 0.19% against the dollar, with the greenback's strength unreversed. The USD liquidity premium has risen above the median (57% quantile). In the third week of June, the onshore dollar liquidity premium rebounded across the board, but it is still at the mid-low position (26%). The offshore dollar liquidity premium has rebounded and is at a historical high (89% quantile), and the difference between onshore and offshore liquidity has converged, but the spread still shows that the financial environment in non-US markets is extremely tight.
In the third week of June, USD/JPY broke through the 2002 high and closed above 135, a new high since 1998. While the Fed accelerated the pace of interest rate hikes in June, the Bank of Japan continued to maintain its easing orientation, and the clear monetary policy attitude of hawks and doves pushed the yen to depreciate rapidly.
In the third week of June, the RMB exchange rate fluctuated weakly, and the offshore RMB exchange rate depreciated by 0.14% to 6.72. So far, the depreciation has not been sufficient in terms of time and space. The short-term trading congestion of the RMB has rebounded sharply, returning to the 10% mark (it was at the 1% mark last week), and the trading sentiment has gradually recovered. The price-performance ratio of the RMB is still at an absolute low level, and the 1/2-year mid-term US bond spread further widened to -85bp and -89bp, hitting a new record low in the middle of the week.
5. Overseas : Global credit risks are rising
In the third week of June, the CME Fed’s observation showed that the expectation of interest rate hikes for the whole year continued to rush upwards. The expected number of interest rate hikes implied by futures rose to 13.9 times (25bp each time), and the probability of a 75bp hike in July was 86.2. % (about 10% last week), the probability of a total rate hike of 125bp in July and September has risen to more than 55%.
In the third week of June, the interest rate of 10Y U.S. Treasury bonds rose and fell. It stood at 3.5% during the week and closed at 3.25%. The real interest rate of 10-year U.S. Treasury bonds rose by 28bp to 0.67%, and financial conditions further deteriorated. The Nasdaq and Bitcoin are highly negatively correlated with real interest rates, so the decline is more pronounced. Year-to-date, Nasdaq is down 31% and CME Bitcoin futures are down more than 50%.
