MHMarkets：December 25, 2023,--Fundamental Reminder

Due to the Christmas holiday, stock markets in countries such as South Korea, Australia, Germany, Italy, Spain, the United Kingdom, France, and the United States will be closed for one day; Brent crude oil futures contracts under ICE in the United States are suspended throughout the day, while precious metals, US oil, foreign exchange, and stock index futures contracts under CME in the United States are suspended throughout the day.

The Hong Kong stock market is closed for Christmas, and north-south trading is closed.

Market Overview

Review of Global Market Trend

Last Friday, the US dollar index eased in the European session and fell to an intraday low of 101.42, but regained some of the lost ground in the US session and finally closed down 0.08% at 101.70.The 10-yearUSbond yield fell and then rose, and regained the 3.9% mark in the US session and finally closed at 3.901%.The yield on the two-year US bond, which is more sensitive to Fed policy rates, closed at 4.329%.

Spot gold once rushed to the 2070 mark, touching a new high of nearly two weeks, but ultimately failed to stand above the 2070 mark, and retracted most of the gains, and ultimately closed up 0.34% at $2052.99 per ounce; spot silver in the US trading session fell sharply, and once close to the 24 mark, and ultimately closed down 0.87% at $24.19 per ounce.

International crude oil edged lower as the market worried that Angola might further increase production after announcing its withdrawal from OPEC. WTI crude oil was blocked near $75, and then dived sharply in the US trading session, finally closing down 0.7% at $73.93 per barrel; Brent crude oil was still unable to stand firm above the $80 mark, finally closing down 0.6% at $78.87 per barrel.

The US S&P 500 closed up 0.17% and the tech-dominated Nasdaq Composite closed up 0.19%. The Dow closed down 0.05%. Notably, the three major US stock indices recorded their eighth consecutive weekly gain.

Major European stock indices were mixed. Europe's Stoxx 50 index closed down 0.07%, Germany's DAX 30 index closed up 0.11%, and Britain's FTSE 100 index closed up 0.04%.

Market Focus

1. The US Core PCE Price Index recorded an annualized rate of 3.2% in November, which was the smallest increase since April 2021; the Headline PCE Price Index recorded a monthly rate of -0.1%, which was the first decline since April 2020; the Headline PCE Price Index recorded an annualized rate of 2.6%, which the smallest increase since February 2021; and the US One-Year Inflation Rate is expected to post a rate of 3.1% in December, which was the lowest level since March 2021.

2. The Israel Defense Forces (IDF) says it has almost complete control of the northern Gaza Strip.

3. According to the Wall Street Journal, Iran assisted the Houthi armed group to attack the Red Sea ships, which Iran denied. British media said the United States deployed in the Red Sea “the largest military force in recent decades”.

4. A commander of Iran's Islamic Revolutionary Guards Corps (IRGC) said that if the United States and its allies continue to commit crimes in the Gaza Strip, it may prompt the emergence of new resistance forces. He claimed that “the Mediterranean Sea, the Strait of Gibraltar and other waterways” could be closed.

5. Russia plans to reduce oil exports from its ports by 100,000 to 200,000 bpd in January next year, sources said.

6. Russian Media: starting from next February, Russia will raise by 10.2% the transit fee paid to Belarus for oil delivered to Europe through the southern branch of the Druszhba pipeline.

7. US President Joe Biden signed and approved the US defense budget for the fiscal year 2024. According to the budget, the US will allocate $886 billion for all types of military spending in FY2024, an increase of nearly $30 billion over the previous fiscal year, which is the highest amount ever. According to the budget, $800 million of that amount will be made available to Ukraine. 

Institutional Perspective

01

Bank of China

【Bank of China:The Fed's monetary policy faces a difficult turn in 2024】

In the view of Zhao Xueqing, a senior researcher at the Institute, the Fed's monetary policy faces a difficult turn in 2024. From an economic point of view, the momentum of US growth is weakening, and negative factors in more areas are beginning to emerge. The supportive role of private consumption is falling back, manufacturing investment and industrial production are weak, and the job market is starting to cool. Although the US economy is more likely to have a soft landing, the risk of recession remains. This requires the Federal Reserve to end the tightening cycle, or even open the rate cut operation. In terms of inflation, after the most aggressive rate hiking cycle in history, the level of inflation in the US has come down significantly. However, geopolitical risks resulting in supply chain disruptions, energy and food prices at relatively high levels, the experience of the epidemic after the structure of the labor force as well as payroll affected, inflation is difficult to stabilize at the 2% target level. Therefore, the Fed's monetary policy can neither be significantly relaxed, nor significantly tightened. Therefore, Zhao Xueqing predicts that the Fed will stop raising interest rates in 2024 and then slightly lower them, but the benchmark interest rate will still remain relatively high.

02

JP Morgan

【Economist at JP Morgan: the US economy is likely to experience a downturn next year】

On the 24th, Zhu Haibin, Chinas Chief Economist of JP Morgan, predicted at the 2023 Annual Meeting of the China Wealth Management 50 Forum in Shenzhen that under the dual pressure of monetary and fiscal policy tightening, the US economy is likely to experience a downturn next year and may enter an economic recession.

He further pointed out that the current market for the Fed's interest rate policy next year's basic judgment is that there will be no more interest rate hikes, and now the market is mainly discussing when to cut interest rates, and how much to cut interest rates next year. “According to the forecast of our US team, the US may start to cut interest rates around June next year, and the cumulative reduction will be 125 basis points. ” When it comes to the trend of the US fiscal deficit rate next year, he said JP Morgan's current forecasts show that the US will face double pressure from monetary and fiscal policy tightening next year.

03

CICC

【CICC: After the Fed's policy enters the platform stage, the interest rate of US treasury bond bonds will decline, which may ease the pressure of RMB depreciation and foreign capital outflow, reduce the constraints on China's monetary policy, and improve the performance of RMB assets.】

The Fed enters the platform stage of policy after the US Treasury rates down, which may ease the depreciation of RMB and the pressure of foreign outflows, reduce the constraints on China's monetary policy, favorable performance of RMB assets. The reporter noted that Wang Chunying, deputy director of the State Administration of Foreign Exchange and spokesman, recently pointed out that the overall net inflow of foreign capital under the securities investment has resumed, and the willingness of foreign capital to allocate RMB bonds has continued to improve. Foreign capital in recent months in the continuous net increase in domestic bond holdings, foreign capital in November net increase in domestic bond holdings amounted to 33 billion US dollars, which was the second highest value in history.