Huatai Securities: Strong policy determination, looking forward to more details, focusing on expected differences

The September Political Bureau meeting specifically discussed the economic situation, with key points highlighted and positive signals worth studying and analyzing in detail:

Key Point 1: Overall Impression - More Urgency in Timing, More Realism in Thinking, Expecting More Policy Details

Firstly, in terms of timing, the discussion of the economic situation and economic work at the September Political Bureau meeting was not a routine arrangement, highlighting the "urgency" of policies. Phrases like "taking action" and "unity" carry strong signal significance, which is expected to boost market expectations to some extent.

There are three reasons behind the current economic situation:

First, the pains of the transition of old and new economic drivers and the transformation cycle; second, non-economic factors such as geopolitical environment, soft environment, social incentive mechanisms, etc.; third, the imbalance of economic supply and demand, especially the issue of insufficient total demand. Under economic inertia, efforts to achieve the annual economic targets, seizing the key moments of "Golden September and Silver October" and "autumn prosperity" are important reasons for the urgency of policies. Following the "combination punch" of financial policies this week, the higher-level Political Bureau meeting once again emphasized "increasing" policy efforts, indicating that there are more incremental policies in the pipeline.

Secondly, the description of the current economic situation as "encountering some new situations and problems" and the call to "face difficulties" indicate some new ways of addressing core issues in the current economy such as real estate and people's livelihoods. Focusing on helping companies overcome difficulties is based on confidence issues, hinting at possible changes in policy thinking and the potential for more demand-side support.

Thirdly, more policy details are expected in the future. We have always emphasized that the current policy objectives are not only about stabilizing growth but also about preventing risks. The issues in the current economy, such as real estate, local government, household income, and corporate perceptions, are not just about growth but also about economic operational risks. This meeting has paid strong attention to these issues and provided some guiding responses. However, based on the tone of "risk prevention," more policy details are still worth looking forward to, with real estate being "stable," finance being "necessary," and the annual target being "striving to achieve."

Key Point 2: Real Estate is a Highlight of this Meeting, Focusing on the New Term "Stopping the Decline and Stabilizing"

"Promoting the stabilization of the real estate market" is a new expression. As we mentioned in the fundamental observation on September 22nd, although the market has already shown signs of sluggishness in real estate operations, and the further deepening of the decline in real estate investment has not yet occurred, the strengthening transmission of fiscal and household sectors is related to real estate operations. Real estate affects the spending capacity of the broad fiscal and the wealth effect of households, and the month-on-month trends of social retail sales and industrial added value are worth noting. Stabilizing real estate is still necessary.

The term "stopping the decline and stabilizing" at this meeting is understood to first refer to housing prices, followed by sales, and finally investment.

Housing prices are a key part of the current economic cycle. Several key points on the demand side include: first, the "reduction of mortgage rates for existing homes" has been officially announced, and the specific implementation details and timeline are yet to be seen; second, "adjusting housing purchase restrictions," mainly focusing on core first-tier cities. Since September, second-hand home sales in first-tier cities like Shanghai have cooled down, but there is still room for some relaxation in purchase restrictions. The subsequent policy developments and the real estate market in first-tier cities have certain implications for the national outlook From the perspective of stabilizing house prices, the key focus is on the situation of real estate "destocking" policies, as well as the elasticity and sustainability of sales recovery.

For investments, the expression "strict control on incremental growth" implies that the investment side may not be the short-term focus yet. "Optimizing existing stock" and "activating idle land in stock" mean that the short term will still be dominated by existing commercial housing and projects that have started but have not been sold or completed. For real estate enterprises, "increasing the intensity of project loans for 'white-listed' projects" may provide more financing support to existing non-defaulted real estate enterprises.

Key Point Three: Follow-up intensity and methods of fiscal and monetary policies

On the fiscal side, "maintaining necessary fiscal expenditures," combined with recent market expectations, incremental policies may already be on the way, such as alleviating local fiscal deficits through local bonds or special national bonds, bank capital injections, etc. Pay attention to the subsequent implementation, with a few key points to watch: whether there is a systematic solution (mainly risk prevention, while considering stable growth), the scale, and the timing of implementation. October is an important time to watch, the purpose may be expanded, but the scale remains uncertain.

On the monetary side, the Political Bureau meeting mentioned "lowering the reserve requirement ratio, implementing a forceful interest rate cut," no longer mentioning "prudent and precise," but emphasizing "forceful." The financial policy combination for this week has been implemented, and compared to the past, the monetary easing intensity has significantly increased. On September 25, the MLF rate was lowered by 30 basis points to 2%, and further waiting for OMO, LPR cuts, and RRR cuts to be implemented. Recently, the pressure on the fundamental stability and growth has increased, the constraints on interest rate cuts have eased internally and externally, objectively requiring the central bank to significantly relax monetary policy.

At the press conference on September 24, Governor Pan stated plans to increase core Tier 1 capital for 6 major banks. Although the amount of capital injection is still uncertain at present, this move will alleviate the operational pressure on major banks. Externally, the pressure from the Federal Reserve entering an interest rate reduction cycle, with a 50 basis point rate cut in September exceeding market expectations, has led to the Renminbi exchange rate rising to around 7, significantly easing exchange rate pressure.

Key Point Four: Emphasis on domestic demand may shift to transfer payments

The expression of people's livelihood in this Political Bureau meeting is more specific than before, "effectively carry out grassroots 'three guarantees' work," "do a good job in...employment of key groups, strengthen...assistance to groups facing employment difficulties, strengthen assistance to low-income populations," the expression is more specific, the direction is clear, not only focusing on stable growth, but also on risk prevention.

On the domestic demand side, the new proposal of "combining consumer promotion with benefiting people's livelihood, promoting income growth for middle and low-income groups, and improving consumption structure" is mentioned. Combined with the State Council's distribution of one-time living allowances to disadvantaged groups before National Day, it is expected that transfer payments may become the focus of subsequent demand-side policies. Structural social security policies can be expected, focusing on middle and low-income groups with relatively higher consumption tendencies, with better marginal performance expected in essential goods, experiential services consumption, down-market sectors, etc.

Key Point Five: Rebuilding a positive cycle in the capital market

For micro-enterprises, the weight of this "helping companies through difficult times" statement is significant. Looking ahead, after policies become more refined, we expect micro-entities to perceive more improvements.

As for the capital market, the unblocking of bottlenecks requires more conditions to be met, with the key still lying in development and profit expectations. This week, two new stock market liquidity support tools were added to financial policies, providing a profit bottom line for the stock market and helping financial institutions deal with redemptions and sell-offs. However, the effect on incremental funds remains somewhat indirect, with the profit effect favoring the formation of a positive cycle. That is, when stocks rise and generate excess returns, financing entities are more willing to refinance to continue increasing holdings or repurchasing stocks, further boosting stock prices. The key link lies in profit expectations and market profit effects.

Market Insights:

Reiterate that the bond market follows the trend but faces headwinds, continuing to respect trends, playing with policies, and believing in common sense. The current policy signals have shown positive changes in pace and manner, with expectations for more policy details in the future; the monetary policy is entering a period of exertion, with subsequent reserve requirement cuts helping to loosen funding constraints, and interest rate cuts benefiting the downward trend in interest rates, maintaining a respectful attitude towards trends. However, short-term policy variables, including real estate policies, fiscal intensification, and other policies, may disrupt the bond market. Strong policy determination is expected, with more policy details anticipated.

In addition, institutional attitudes, redemption feedback risks, bond supply, and other factors may also be potential disruptive elements. The probable fluctuation range of the 10-year government bond in the future is around 1.9-2.2%, with the yield curve becoming steeper. Time deposits are the biggest beneficiaries, waiting to seize the opportunity to adjust the allocation of long-term interest rate bonds, while actively allocating medium and short-term credit bonds and commercial paper bonds.

The stock market's "red envelope" rally continues, with strong and positive policy signals boosting risk appetite, short-term liquidity improving slightly, and A-shares consolidating at the bottom, successfully reclaiming the 3000-point mark today. There may be more incremental policies on the way, with the October landing phase still providing support for sentiment, focusing on expectations gaps, and potential increased volatility. Stronger resilience requires cooperation from corporate profit expectations.

Authors: Zhang Jiqiang, Wu Yuhang, Source: Huatai Securities Fixed Income Research, Original Title: "[Huatai Fixed Income] Facing Difficulties, Further Strengthening Policy Signals - Review of the September Political Bureau Meeting"