Merchants Macro: What are the bright spots in the economy in December?

Core View The high-frequency data trend of the investment chain in December is consistent with that of November. The capacity utilization and production rate are relatively stable, but the production of cement, asphalt, steel, etc. continues to weaken. It is expected that the growth rate of industrial value added in December may continue to slow down. Industrial product prices remain at a low level, with prices of steel, asphalt, glass, PVC, and coal continuing to decline, indicating a lack of demand on the investment side. Real estate market sales have stabilized. High-frequency data since December shows that the transaction area of commercial housing has further increased compared to November, with a stable growth rate on a weekly basis. The improvement in real estate sales will help maintain fast growth in the sales of commercial goods in the real estate sector next year. Looking at economic data since the fourth quarter, the main effect of countercyclical policy adjustments is the improvement of structural data, but the overall weak macroeconomic situation has not been reversed, so policies will continue to be implemented. Forecast: Industrial value added in December is expected to increase by 5.2% year-on-year; total retail sales of consumer goods are expected to increase by 3.3% year-on-year in the same month. Cumulative fixed asset investment in December increased by 3.2% year-on-year, with manufacturing investment increasing by 9.0% year-on-year, total infrastructure investment increasing by 9.3% year-on-year, and real estate development investment decreasing by 10.5% year-on-year. Export growth in December is expected to be 7.2% year-on-year, while import growth is expected to be -1.5% year-on-year in the same month. CPI is expected to increase by 0.2% year-on-year in December, while PPI is expected to decrease by -2.2% year-on-year. General public budget revenue increased by 0.5% year-on-year in November, while general public budget expenditure increased by 2.9% year-on-year. Text I. Economic Operation 1. In December, the high-frequency data trend of the domestic economy investment chain is consistent with that of November. On the supply side, the utilization rate and capacity of production are relatively stable, but the production of cement, asphalt, steel, etc. continues to decline. It is expected that the growth rate of industrial value added in December may continue to slow down. On the demand side, industrial product prices remain at a low level, with prices of steel, asphalt, glass, PVC, and coal continuing to decline, indicating that there is still insufficient demand. Real estate market sales have stabilized. High-frequency data since December shows that the transaction area of commercial housing has further increased compared to November, with a stable growth rate on a weekly basis. The improvement in real estate sales will help maintain fast growth in the sales of commercial goods in the real estate sector next year. Looking at economic data since the fourth quarter, the main effect of countercyclical policy adjustments is the improvement of structural data, but it has not changed the relatively weak performance of the total data. Therefore, policies need to be further implemented. Forecast: Industrial value added in December is expected to increase by 5.2% year-on-year; total retail sales of consumer goods are expected to increase by 3.3% year-on-year in the same month. Cumulative fixed asset investment in December increased by 3.2% year-on-year, with manufacturing investment increasing by 9.0% year-on-year, total infrastructure investment increasing by 9.3% year-on-year, and real estate development investment decreasing by 10.5% year-on-year. 2. Exports and imports are expected to grow by 7.2% year-on-year and -1.5% year-on-year in December, respectively. In November, exports increased by 6.7% despite a high base, driven by the "export rush" effect and strong exports to the US. In November, exports to the US remained strong, and the "export rush" may continue to support this month's export growth. Data shows that in November, the ratio of purchases to current production by US manufacturers reached a new high since March 2017, and congestion at US ports significantly increased. The PMI of US manufacturing enterprises showed a significant increase in their own inventory in November, indicating that US manufacturers are already "grabbing imports" and stocking up early. Looking ahead to December, export growth driven by the "export rush" may continue to be in a prosperous range, while December is the peak season for consumption at the end of the year, and overseas importers continue to stock up. From high-frequency data, freight rates for exports have been increasing in December, and port throughput is at a relatively high level compared to the same period in recent years. Imports in December are expected to decrease by -1.5% year-on-year. The PMI of manufacturing industry in December remained above the boom-bust line, but the production index is still at a relatively high level compared to the same period in recent years, and the import index has significantly increased. The purchasing index is further rising above the boom-bust line, indicating that the willingness of manufacturing production and raw material purchases is still strong, which is expected to continue to drive demand for certain commodities and increase imports, such as crude oil and copper metal. In addition, domestic buyers are likely to increase their imports of electronic products before the new round of semiconductor sanctions take effect, thereby boosting the growth of imports of related electrical and mechanical products. South Korea's exports and imports to China in the first 20 days of December increased significantly compared to the previous month, reflecting this trend from a side perspective. II. Commodity Prices CPI is expected to increase by 0.2% year-on-year in December. CPI is expected to continue to be under pressure in December, with the magnitude of year-on-year changes expected to be similar to the previous month. The contribution of food items is expected to weaken further, with pork wholesale prices further declining in December and continuing to drive down the year-on-year growth rate of pork prices. Compared to November, vegetable and fruit prices have stabilized, but with the base number increasing from last year, the year-on-year growth rate is still significantly lower. Non-food items are expected to provide some support, especially with the substantial rebound in domestic gasoline prices and their year-on-year growth rate in December compared to the previous month. In addition, the substantial recovery of the service industry PMI in December is expected to maintain the overall resilience of service prices. PPI is expected to decrease by -2.2% year-on-year in December. With a series of existing policies and incremental policies working together, the year-on-year decrease in PPI is expected to continue to narrow. First, the PMI of the manufacturing industry in December remained above the boom-bust line, and the sales area growth rate of commercial housing in 30 cities remained above 0%, indicating that the current real estate cycle has entered a phase of stabilization and recovery, with a small probability of further decline in real estate investment, coupled with the accelerated progress of building completion by the end of the year, is expected to drive the year-on-year growth rate of prices of midstream and upstream industrial products. Second, as we enter December, activities such as Double Twelve, New Year's Day, and early Spring Festival stocking are expected to boost downstream demand, thereby providing some upward impetus to the PPI in related consumer industries. Third, the stabilization of domestic gasoline prices and international crude oil prices in December, coupled with the significant year-on-year rebound due to the decline in the base number from last year, suggest that industries related to petroleum, which have a high weight in the PPI, will be the core contributors to the increase in PPI. III. Fiscal Policy General public budget revenue is expected to increase by 0.5% year-on-year in December. Looking at the whole year, the budget completion rate of general public budget revenue is expected to be significantly higher than that of 2022, but lower than that of 2023. The core difference between this year and 2022 isIn the fourth quarter of 2022, the economic prosperity is relatively low, while in the fourth quarter of this year, the economic prosperity is showing a clear recovery trend, which will also be reflected in the tax revenue performance in the last month of the year. In addition, data from October to November indicate that local governments are continuing to revitalize existing assets and enhance non-tax revenue. With the joint support of tax revenue and non-tax revenue, the growth rate of general public budget revenue in December is expected to remain at a higher level. It is predicted that the cumulative year-on-year growth rate of general public budget expenditure in December will be 2.9%. December is the last window for fiscal expenditure to catch up with the schedule. As the annual new national debt quota has been issued in advance, it is expected that with the further improvement of fiscal revenue, the funding constraints on the expenditure side have significantly eased, and therefore fiscal expenditure will continue to maintain a positive trend, further enhancing support for the fundamentals.In terms of government funds, the growth rate of expenditure may see a slight improvement, but the actual workload implementation still needs to wait until the first quarter of 2025. In December, high-frequency indicators related to infrastructure and construction showed a seasonal decline. The PMI for civil engineering construction in December was above the boom-bust line, mainly due to a significant increase in new orders index, while the operating personnel and intermediate input indices remained low. Due to the slower-than-expected improvement in government fund revenue, the necessity to further promote expenditure and increase the actual fiscal deficit has decreased against the background of the basic achievement of the annual economic growth target. The surplus funds from the issuance of special bonds are likely to be combined with the budget arrangements for the first quarter of next year and 2025, in order to accelerate project implementation progress and achieve an early fiscal stimulus. IV. International Capital Flows In November, the trend of capital inflow into China's stock market and outflow from the bond market continued. Against the background of the improvement in China's economic fundamentals, stable growth in export orders, and the accelerated formation of more physical workloads, the PMI of China's manufacturing sector continued to stay above the boom-bust line in the fourth quarter, attracting continuous capital inflows through the Hong Kong Stock Connect due to valuation advantages and expected improvements. Externally, in November, the strengthening of the US dollar index and the surge in US Treasury yields led to capital outflows from the bond market, affected by passive allocation adjustments by foreign investors and exchange rate fluctuations. In December, the adjustment of market expectations for a Fed rate cut and the strengthening of the US dollar index exacerbated external pressures. In 2025, global economic growth is expected to remain stable, with resilience in the US economic fundamentals, but the new Trump administration's economic policies have significantly increased uncertainty in the inflation resistance process. Overseas markets have adjusted their expectations for a Fed rate cut and leaned towards a cautious-hawkish stance, with the US dollar index strengthening above 108 and the yield on the US 10-year Treasury rising above 4.5%. Considering external pressures and uncertainties, it is expected that capital inflows through the Hong Kong Stock Connect will continue, but the pace may slow marginally, with a slight outflow of funds from the bond market. Risk warning: Uncertainty in policy effectiveness; uncertainty in overseas economic trends and monetary policies. This article is from the WeChat public account "CMB Macro Reflections," authored by CMB Macro Zhang Jingjing Team; edited by GMTEight: Wen Wen.