China's manufacturing purchasing managers' index (PMI) data for January, released last week, showed a slight rebound to 49 on a month-on-month basis2 (up from 49 in December), but has been below the 50 line for four consecutive months, indicating that manufacturing activity is still in contraction. Among them, the production index and the new orders index rose to 513 and 49, part of the increase was driven by the demand of enterprises to prepare production in advance for the Spring Festival. Meanwhile, the non-manufacturing PMI performed better, rising further to 507. It shows that non-manufacturing economic activities are gradually picking up.
In addition, according to our December 2023 BofA Index of Economic Activity (ACT), overall economic activity declined slightly compared to November. Among the sub-indicators, key areas such as passenger traffic, retail sales, fiscal revenue, and financial services all showed a month-on-month downward trend. However, the actual export-related data rebounded in the month.
According to the statistics of the Ministry of Transport, the total number of trips during the Spring Festival has recovered to about 105-107% of the level of the same period in 2019, and the proportion of railway and air transport has recovered to 124% and 117% respectively, reflecting the strong recovery of people's travel demand. Although low temperatures, rain, snow and freezing weather have had a certain impact on traffic, real-time monitoring tools such as the migration index have shown a similar good recovery.
However, in terms of the real estate market, despite the fine-tuning of purchase restrictions in some key cities, property sales still weakened significantly in January, and even after considering the low base effect caused by the dislocation of the Spring Festival, the sales of the top 100 real estate companies still fell sharply by 35% year-on-year, which means that the industry urgently needs more policy support to boost market confidence.
Recently, we conducted a survey of 1,000 people on Chinese New Year holiday tourism. According to the survey, due to the increased demand for returning home to visit relatives, the demand for travel during the Spring Festival period has decreased compared to the 11th week, with about 57% of respondents planning to travel (down from 87% during the 11th holiday), and 22% of respondents believe that the flu and epidemic factors may affect their holiday travel plans (compared to 13% during the 11th holiday). In terms of travel budget, 71% of respondents said they would increase travel-related spending, up from 61% during last year's National Day holiday, and showed the characteristics of long travel time and long distances, with 18% of cross-border trips. Overall, the number of tourists and tourism revenue during this year's Spring Festival holiday is expected to recover further compared to the New Year's Day holiday (109% and 106% in 2019), and the public's willingness to travel is expected to remain strong in the next six months, with 74% of respondents already planning for the holiday, of which 70% said they would increase their spending on their next trip.
In terms of US monetary policy, after the Fed's FOMC meeting last week, Chairman Powell hinted that "the probability of a rate cut in March is low", and combined with the current data-driven decision-making mechanism, we believe that the Fed is likely to start cutting rates for the first time in June. As a result, our U.S. team has adjusted the original 4 rate cuts this year (starting in March) to 3 (starting in June), and the start of quantitative tightening has also been postponed from March to May. In addition, the latest U.S. employment data showed that non-farm payrolls significantly exceeded expectations (35.).30,000 vs expected 1850,000), and wages rose similarly faster than expected, and the data showed no clear signs of slowing down in the U.S. economy. Against the backdrop of strong Q4 GDP growth, this may signal a more cautious approach to accommodative policy in the near term. As a result, the probability of a rate cut in March has dropped to 15%, while the probability of a rate cut in May has stabilized at around 90%.
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