I. Performance of Global Equity Indices (in US dollars)
Source:Bloomberg,2024/05/27-2024/06/02
II. Key Market Themes
i. The "National Integrated Circuit Industry Investment Fund Phase III" has landed with a concentrated effort of 344 billion yuan to address weaknesses.
On May 24th, the National Integrated Circuit Industry Investment Fund Phase III Co., Ltd. (referred to as "National Fund Phase III") was established, with a registered capital of 344 billion yuan, marking a significant increase compared to the previous two phases.
Looking back, "Fund Phase I" was established in September 2014 with a scale of 98.72 billion yuan, mainly investing in downstream integrated circuit manufacturing, design, packaging, and testing equipment. "Fund Phase II" was established in October 2019 with a scale of 204.15 billion yuan, targeting upstream sectors, primarily addressing industries such as equipment and materials facing bottlenecks.
We anticipate that the focus of "Fund Phase III" will be to "address manufacturing weaknesses and tackle related projects in advanced manufacturing". For example, advanced manufacturing processes on the production side, IDM factories for memory chips, and advanced equipment and materials with low domestic production rates upstream. In summary, the fund aims to concentrate on breakthroughs in weak links, not evenly distributed, and sectors in the semiconductor industry that have seen excessive investment in the past may face reshuffling.
Currently, Northbound ETFs covering semiconductor concepts have performed well during the previous two phases of the "National Fund" operation periods.
Source：Bloomberg
ii. In April, US PCE (Personal Consumption Expenditures) slightly exceeded expectations, with income consumption remaining robust. Rate cuts still on the horizon?!
This week, the US released April PCE data. The core PCE (excluding food and energy), considered a "key indicator" by the Federal Reserve, rose by 0.2% month-on-month and 2.75% year-on-year, slightly outperforming expectations but still falling short of the 2% target.
Looking at the breakdown, amid the continued impact of high interest rates, goods consumption has been declining for several months, but service consumption remains strong. Core service consumption, excluding housing, grew by as much as 3.43% year-on-year.
From an income perspective, personal income rose by 0.3% month-on-month in April, remaining stable compared to the previous month. Despite a slight decrease in total work hours, employee compensation and disposable income growth remained strong, supporting a vibrant consumption market. On the other hand, the US savings rate in April was only 3.6%, significantly lower than pre-pandemic levels, indicating that households have not increased precautionary savings but have chosen to continue spending.
We believe that although April's PCE slightly exceeded expectations, it cannot be considered "very satisfactory"; it can only be said to have provided the market with "a little relief". As previously judged by Federal Reserve officials, "more data and more time are needed". Furthermore, the mutual support between US income and consumption, both remaining robust, also underpins the Fed's confidence in maintaining high interest rates.
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