Hello everyone, overnight European and American stock markets and today's Japanese market opened with different adjustments, and there was a pullback after two consecutive months of continuous rise, which aroused the attention of investors. In this regard, our comments are as follows.

From the perspective of specific triggering factors, there are mainly three points:

Trade frictions, which have been silent for a period of time, have warmed up again at the margin.. Yesterday, President Trump said he would re-impose tariffs on steel and aluminum in Brazil and Argentina. Not only that, the USTR also considered whether to launch a countermeasure against the digital tax of major US technology companies in France. After continuing to ease over the past two months, trade frictions have heated up again, attracting some attention from investors, especially given that the Sino-US trade talks are still at a critical juncture and the time for a new round of tariff increases scheduled for December 15 is approaching. The follow-up progress deserves close attention.

The US manufacturing industry was announced yesterday.ISMContinuing to exceed expectations has poured cold water on expectations of a recent recovery in the market.In terms of specific data, ISM manufacturing PMI was only 48.1% in November, not only down from 48.3% in October, but also significantly lower than market expectations of 49.2%, not to mention the previously announced strong performance of Markit manufacturing PMI. In terms of items, new orders and new export orders indicating demand are both lower than in October.

Of course, we should also look at the data differences relatively objectively:

1) differences between different markets.Compared with China and Europe, the manufacturing inventory and inventory cycle in the United States is relatively backward, about two quarters, which is why our outlook in 2020 suggests that, based on the experience of the historical cycle, probably around the second quarter of next year, manufacturing inventories and investment in the United States may fall to relatively low levels in the historical cycle.

2）ISM和Markit PMIThe difference.The main difference between the two is reflected in the coverage of sample areas and construction methods. In short, Markit PMI covers a wider range of samples than ISM, and its quarterly adjustment method will adjust the factors monthly, which also makes its trend smoother. From historical experience, the correlation between Markit PMI and actual economic data seems to be higher, but ISM PMI is more concerned in the United States. Given the huge differences between the two in recent trends, the market may need more data to verify the direction.

The light turnover and profit-taking caused by the approaching Christmas holiday will lead to the risk of fengshui magnifying fluctuations.After all, expectations in major markets are relatively "full", US stocks are still in the overbought range, VIX volatility is low, and VIX bears have reached new highs, so they are more sensitive to some "wind".

For the future trend of market and asset prices, we need to grasp three points:

First, the improvement of liquidity is the current background.. Global liquidity has improved thanks to the Fed's expansion since mid-October ($60 billion a month) and the ECB's QE in November (20 billion euros a month). As of November, the Fed's holdings of securities assets have risen by $97.2 billion from its September low. One of the direct effects of improved global liquidity is that major markets, especially thoseRegions that have continued to flow out (such as emerging markets such as Europe and Hong Kong stocks) have seen relatively obvious inflows recently.This is also the main meaning that our 2020 outlook emphasizes "water flows to lower places". Another role of improved liquidity, with reference to historical experience, is to support equity assets and suppress bonds.

In fact, in retrospect, whether it is the recent stock market rebound, the rebound in interest rates, the steepening of the yield curve, the outperformance of value growth, or the return of money to the "depression" market, the starting point can be traced back to the Fed's announcement of renewed expansion in mid-October. Therefore, looking forward for some time, this will still be a big background and main tone affecting the performance of asset prices.

Second, the improvement in short-term fundamentals is marginal change.Although the latest data released by the United States have obviously deviated and diverged, recently European PMI has continued to improve and China's official PMI has returned to above the rise and fall line, which is directly related to the current global manufacturing low inventory and low investment. While its sustainability still depends on a real improvement in demand, periodic improvements overlay liquidity improvements, the boost for more marginal sensitive assets (such as value and cyclical sectors) and markets (such as Europe and some emerging ones) may be more pronounced.

Third, the progress of trade negotiations is to determine the short-term pace.Against the backdrop of improved global liquidity and marginal changes in short-term fundamentals, the progress of trade negotiations in December will be the key to influencing or even determining the pace of short-term assets and style. If the first phase agreement is reached and the tariff increase can be avoided in mid-December, it can further strengthen the promotion of risky assets, depression markets, and value style under the logic of water flow to lower places mentioned above; if there is an unexpected risk of further escalation, this trend will be reversed in the short term, and it will also prompt us to turn to short-term defensive posture to avoid downside risks. In addition, the US and European central banks debated interest rates in December, as well as the UK general election on December 12th.