Minsheng Securities: Macroeconomic suspense before the holiday

Minsheng Macro Research issued a research report stating that after the Federal Reserve cut interest rates, the lack of follow-up by the People's Bank of China seems to leave the suspense of easing until after the holidays. However, considering the current macroeconomic situation and reviewing history, the team believes that this time, the possibility of changes in pre-holiday macroeconomic policy adjustments should not be underestimated. Combining the different expressions of localities regarding the annual economic targets, the latest fiscal and employment data, as well as the key aspects of early layout in the fourth quarter, the growth pressure in the fourth quarter means that it is necessary to make policy arrangements as soon as possible, and more attention should be paid to the signals on macro adjustments. In addition, historically, it seems that the period "before the National Day holiday" has often been an "important window" for policy formation. Looking at the current macroeconomic situation, some subtle changes are worthy of attention: Firstly, after the Yellow River Basin High-quality Development Symposium in mid-September, the expressions of localities regarding whether to "firmly" or "strive" to complete the annual economic and social development targets and tasks are not entirely consistent. This may require a unified understanding as soon as possible. Secondly, the latest fiscal data (fiscal deficit increased to 2.61 trillion yuan from January to August) and employment data (youth unemployment rate rose to 18.8% in August for those aged 16-24) highlight the urgency of securing the "Three Guarantees" at the grassroots level and stabilizing employment. Thirdly, looking at the economic data in August, the GDP growth in the fourth quarter may need to reach 5.4% in order to ensure the achievement of the annual 5% growth target. Therefore, it is crucial to lay out the fourth quarter early in terms of macro adjustments. Reviewing history, there have been important policy signals delivered before the National Day holiday (such as the "930 New Policy" in 2014), which even catalyzed overseas markets during the holidays. However, this time, we believe that more attention should be paid to the signals on macro adjustments. How to interpret the different expressions of localities regarding the annual economic targets? Fiscal factors may be a major reason. The provinces may have different understandings and statements regarding the economic targets, with some provinces still firmly committing to completing the annual economic and social development target tasks, while others are striving to complete them. The provinces that set their targets as "strive to complete" may face greater fiscal constraints. Especially as the national fiscal deficit has continued to expand from January to August, there is a more urgent need for policy implementation. With different performances in the first half of the year, provinces also have different attitudes towards achieving the goals in the second half of the year. Major provinces continue to bear the role of "ballast stone," with Guangdong, Jiangsu, Shandong, and Zhejiang, the top four provinces in terms of GDP share, all firmly committed to completing the annual target tasks. Moderate provinces with slower GDP growth in the first half of the year are focusing on implementation and picking up pace to achieve success, such as Hebei, Liaoning, and Hunan. Provinces with relatively weak economic momentum in the first half of the year are reassessing their economic targets and leaning towards striving to achieve them, such as Hainan, Heilongjiang, and Qinghai. How will the economic powerhouse provinces continue to play a crucial role? More policy guidance may be needed. The four major economic growth poles (Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macau, and Chengdu-Chongqing) cover 8.5% of the country's land area and account for about 37.6% of the population, creating half of the national economic output. Since 2023, the four major growth poles have continued to lead the country in economic growth, playing a crucial role. However, in the second quarter of this year, the economic growth in the three major growth poles, excluding Chengdu-Chongqing, has marginally slowed down. To achieve the target of around 5% for the year, accelerating the development of new growth engines in the economic powerhouse provinces or ensuring that other provinces keep pace with economic growth is crucial. Meeting the target of around 5% economic growth for the year may present significant pressure in the fourth quarter. Based on the economic data in August, GDP growth in the third quarter may slow down to around 4.6%. Our calculations show that GDP growth in the fourth quarter needs to reach at least 5.4% to achieve the neutral target of 5% for the entire year in 2024. Even if the final annual growth of 4.8% meets the lower limit of around 5%, the fourth quarter still needs to achieve 4.7%, considering the high base in the fourth quarter of the previous year. Therefore, the growth pressure in the fourth quarter this year means that it is necessary to make policy arrangements as soon as possible. Looking back at history, the period "before the National Day holiday" seems to have often been an "important window" for policy formulation. A typical example is the "930" New Policy in 2014, which significantly relaxed real estate restrictions by reducing down payments, mortgage rates, relaxing first-home qualifications, and purchasing standards, which had a considerable impact on the market during the holiday period. After the Hang Seng Index and offshore RMB hit a temporary low on September 30th, both experienced significant rebounds during the holiday. In recent years, similar situations have occurred, such as in 2022, when the State Council introduced a series of policies to stabilize the economy, and at the end of September, the central bank introduced measures to stabilize credit, real estate, and exchange rates. In 2023, the July Political Bureau meeting did not mention "no speculation in housing" and further emphasized expanding domestic demand. In September, the fiscal sector began to silently shift focus, with Inner Mongolia launching the first shot to restart special refinancing bonds on the 26th, and a new secretary of the finance ministry's party group taking office on the 28th, creating expectations for fiscal expansion in the fourth quarter. The July Political Bureau meeting this year stated that "macroeconomic policies must continue to exert greater efforts," but the economic growth rate in the third quarter is likely to slow down compared to the first half of the year. Therefore, the policy actions in the last week before the holiday are still worth looking forward to. Risk Warning: Future policies falling short of expectations, unexpected changes in the domestic economic situation, and geopolitical factors exceeding expectations.