This week has been another significant week in macroeconomics, with the Federal Reserve's interest rate hike in January taking effect. Powell's stance was hawkish, essentially negating any plans to cut rates in March, causing the market's overly optimistic expectations to be dashed. Additionally, there was a significant divergence in the U.S. employment data, with the ADP employment figures coming in below market expectations, while the non-farm payrolls data released on Friday greatly exceeded market expectations, and the wage growth rate also surpassed forecasts, indicating a resurgence in U.S. employment data. Although there is skepticism in the market about this data, the U.S. Treasury yield and the U.S. dollar index still rebounded sharply, with the U.S. dollar index approaching the 104 level.
Due to the hawkishness of the Fed, U.S. stocks initially fell, but the earnings reports of U.S. tech giants and better-than-expected buybacks led to a significant rebound in U.S. stocks on Thursday and Friday. This week, the Asia-Pacific stock markets, excluding China, performed the best, followed by U.S. stocks, while European stocks experienced a slight pullback.
Looking at the Chinese stock market, it has been a disaster-level performance, possibly due to the inability of large funds to support the market effectively, and the liquidity crisis has not only failed to be resolved but has instead deteriorated sharply. The snowball products are on the verge of being completely wiped out, and the forced liquidation wave has spread to margin trading and equity pledges. The financing balance in both markets has plummeted like a diver, indicating a significant deterioration in the situation of margin calls, and equity pledges have also shown risks. The result of the forced liquidation wave is that small-cap and micro-cap stocks have continued to plummet, with the CSI 1000 Index plummeting by more than 10% in a single week, and more than 20% since the beginning of the year, entering a technical bear market.
The Hong Kong stock market performed relatively better than the A-shares on Thursday and Friday, which is because the leverage in the Hong Kong stock market had been completely cleared once before. However, if A-shares continue to weaken, the Hong Kong stock market will definitely be dragged down.
Looking at the industry breakdown, all the first-tier industries listed by Shenwan fell, with comprehensive, social services, computer, light industry manufacturing, environmental protection, and other industries leading the decline, with more than half of the industry index falling by more than 10%, which is alarming. Such a dire situation has not been seen before.
Heavyweight weekend news:
We have always emphasized that no matter what logic is discussed, it must be reflected in incremental funds. Northbound capital has always been the most flexible incremental funds. The market was expecting that after the Fed's rate cut, foreign capital could flow back into A-shares. Even if the bottom was taken away, at least it could improve the market. However, it seems that the U.S. economy is quite resilient. In the fourth quarter of last year, due to the peak and subsequent decline in U.S. Treasury yields, the U.S. economy rebounded quickly. The strong performance of the stock market, which brought a wealth effect, also provided a positive feedback to consumer spending. As a result, the Fed's rate cut will be delayed, and the expectation of foreign capital flowing back will also be later.Domestic capital is huddled together in the bond market for risk aversion. Although recent policies have been continuously introduced, they are far from enough to change the perception of domestic investors. Given the current plunge in A-shares, it might take a super heavy-duty policy to reverse the trend. Market expectations can self-fulfill and reinforce; it's possible that the economy is not as bad as it seems, but the asset deflation caused by the significant drop in the stock market and real estate can intensify the deflationary effect, leading to further economic weakness.
The later the intervention in the market, the more difficult and costly it becomes, a truth known to all, yet A-shares have still fallen to the point of triggering risks associated with stock pledge financing. Liu Yuhui, the Chief Economist of China, has stated the urgency of establishing a stabilization fund and solidifying expectations through a transparent system.
Starting from Friday, the discourse around funds' short selling through securities lending has rapidly fermented, and by the weekend, it was a topic of discussion across the internet. In fact, short selling through securities lending is a mature practice in European and American markets, where naked short selling is allowed. However, the threshold for short selling in these markets is low, allowing retail investors to participate, whereas the threshold in A-shares is too high.
Regarding securities lending, the China Securities Finance Corporation announced that in preparation for the suspension of real-time availability of securities lending, the company has scheduled a business simulation test for securities firms with securities lending and market-making borrowing qualifications in a test environment from February 19, 2024, to March 1, 2024.
Additionally, according to Xinhua News Agency, the Central No. 1 Document for 2024 was released on the 3rd, proposing a strong and effective "roadmap" for the comprehensive revitalization of rural areas.
As of the time of writing, the weekend has been relatively calm, with no rescue policies emerging, which is also good, as the market would not believe in ordinary policies, only leading to a high opening followed by a low close.
Risk warning:
The stock market involves risks, and investment should be approached with caution. This article does not constitute investment advice, and readers should think independently.