Title: "Navigating Current Overseas Demand Cycles"

Northeast Securities published a research report stating that the United States' position as the world's leading consumer has not been shaken, and China's status as the world's factory remains solid. Given the high dependence of many industries in the United States on Chinese goods, China's export elasticity in response to the repair of U.S. commodity demand remains quite good, and China's export prospects still depend on the U.S. commodity demand cycle. From global PMI data, it can be seen that the repair of this round of the global manufacturing cycle began in July 2023 and peaked and declined in the third quarter of 2024. Looking at the industry, the repair of demand and the elimination of inventory in this round, non-durable goods performed significantly better than durable goods. Non-durable goods were the first to benefit from the improvement of residents' actual purchasing power, while durable goods were suppressed by the high interest rate environment, and the repair was not obvious.

The status of the United States as the world's leading consumer has not been shaken, and China's status as the world's factory remains solid. Given the high dependence of many industries in the United States on Chinese goods, China's export elasticity in response to the repair of U.S. commodity demand remains quite good, and China's export prospects still depend on the U.S. commodity demand cycle. Looking at the industry, the performance of U.S. imports from China in various industries still has a very strong correlation with its own domestic commodity demand. Even in industries such as automobiles, furniture, metals and minerals, machinery and equipment and supplies, the rebound in import growth from China is significantly higher than the degree of repair of U.S. commodity demand itself. This high elasticity also shows to a certain extent that U.S. demand still heavily depends on Chinese supply.

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From global PMI data, it can be seen that the repair of this round of the global manufacturing cycle began in July 2023 and peaked and declined in the third quarter of 2024, which is confirmed by multi-dimensional data such as U.S. production, inventory, and prices. As of the September 2024 data, the JPMorgan Global Manufacturing PMI was 48.8%, lower than 49.6% in August, and has been deteriorating for three consecutive months. Although the decline is not significant, the rate of decline has accelerated to the largest decline since October last year. This data indicates that the manufacturing recovery momentum that began in July 2023 has reversed to a certain extent. According to S&P forecasts, global manufacturing output grew at a relatively strong year-on-year rate of about 2% in the second quarter of 2024, but stagnated in the third quarter, and the downward momentum strengthened in the fourth quarter. Looking ahead, the impact of high interest rates continues to exist, and starting in the fourth quarter, the repair of this round of U.S. commodity demand cycle will slow down, which will be more prominent in the slowdown of manufacturing production. U.S. PMI data has a strong synchronicity with actual manufacturing deliveries, but the year-on-year change in PMI will lead at the inflection point. Historically, PMI leads U.S. manufacturing deliveries by about 5 months. In this cycle repair, U.S. PMI year-on-year peaked in March 2024, so U.S. manufacturing may peak in the third quarter of 2024.

Since 2022, the U.S. personal savings rate has been around 5% for many years. As a consumer economy where residents generally do not have the habit of saving money, the performance of its consumption data is highly related to its income ability. Since 2023, the rapid decline of previous inflation, coupled with the relative resilience of nominal income, has driven the strength of the U.S. residential sector's actual purchasing power, which in turn has driven the continuous repair of the growth rate of actual personal consumption expenditure in the United States. Whether the future commodity demand in the United States can continue depends on whether its actual income can continue to grow. In the past 50 years, there has been and only been one "preventive interest rate cut," that is, in 1995, Greenspan conducted an interest rate cut operation when the growth rate of actual personal income in the United States did not significantly decline. The result of this move was that the actual personal income in the United States did not show a significant long-term downward trend, but after running smoothly for a period of time, it reversed the trend and started to rise. Now, combining the current economic situation in the United States and Powell's preventive interest rate cut operation, the actual personal income in the United States may first remain stable and then rise again. The re-strengthening of the purchasing power of the American people in 2025 will drive the U.S. commodity demand cycle to rise again.

Looking at the industry, the repair of demand and the elimination of inventory in this round, non-durable goods performed significantly better than durable goods. Non-durable goods were the first to benefit from the improvement of residents' actual purchasing power, while durable goods were suppressed by the high interest rate environment, and the repair was not obvious. It is because of this structural differentiation that this round of manufacturing cycle repair does exist, but the height of the repair is not as significant as the traditional upward cycle. Looking at the industry, a significant feature is that durable consumer goods, except for furniture, generally perform poorly.