1. Report Industry Investment Rating No information provided in the content. 2. Core Views of the Report 2.1 Liquidity in January 2026 - The yield of the active 10 - year Treasury bond rose 0.05bp to 1.8355% from 1.835% last Friday. The yield fluctuated during the week due to various factors such as LPR expectations, government bond issuance concerns, and policy news [1][11]. - Five factors affect the super - reserve ratio. In January 2026, foreign exchange funds are expected to decrease by about 63 billion yuan; the central bank is expected to maintain reasonable and sufficient liquidity through various means and there is a possibility of a reserve requirement ratio cut; fiscal deposits are expected to increase by about 62 billion yuan; M0 is expected to increase by about 78 billion yuan; and required deposit reserves are expected to increase by about 50 billion yuan. The liquidity gap is about 190 billion yuan, which can be adjusted through open - market operations and reserve requirement ratio cuts [15][16][21]. - In the bond market, institutions may pay more attention to institutional behavior. It is expected that the allocation power of banks and insurance will strengthen at the beginning of next year, and interest rates may decline [21]. 2.2 US Economic Data and Fed Policy - Spot gold prices exceeded $4,500 per ounce, and it is expected to continue to play an important role in different asset portfolios. The RMB - US dollar exchange rate once exceeded 7. The long - term RMB value is systematically undervalued, but in the medium - term, the role of macro - policies in the transition from exogenous to endogenous growth needs to be considered [22][23]. - US economic data shows that inflation pressure is easing, economic expansion momentum is weakening, the labor market is stable, and the Fed is in a "data - dependent" mode. It is likely to keep interest rates unchanged in the short term, but if economic data weakens, it may resume gradual interest rate cuts from January to April [23][26]. 3. Summary by Relevant Catalogs 3.1 One - Week Views 3.1.1 Liquidity in January 2026 - **Weekly review**: The yield of the 10 - year Treasury bond fluctuated during the week. The reasons included LPR non - adjustment, concerns about government bond issuance, and policy news [12]. - **Weekly thinking**: Analyze the five factors affecting the super - reserve ratio and predict the liquidity situation in January 2026. The overall liquidity gap is about 190 billion yuan, and the central bank may use various means to maintain liquidity [15][16][21]. 3.1.2 US Economic Data and Fed Policy - **Gold and exchange rate**: Gold prices are expected to continue to rise. The RMB - US dollar exchange rate is affected by fiscal deficit and fiscal monetization [22][23]. - **US economic data**: The December PMI initial values were lower than expected, the November CPI and core CPI were lower than expected, the unemployment rate rose to 4.6%, and the labor participation rate was stable. The Fed's policy is focused on "liquidity guarantee and prudent policy balance" [23][24][26]. 3.2 Domestic and Overseas Data Summaries 3.2.1 Liquidity Tracking - **Open - market operations**: From December 22 - 26, 2025, the central bank's open - market operations had a net investment of 6.52 billion yuan [38]. - **Interest rates**: Various interest rates such as money market rates, bond yields, and futures prices are presented in figures and tables, showing their trends and changes [39][40][42] 3.2.2 Domestic and Overseas Macroeconomic Data Tracking - **Commodity prices**: Steel prices declined, and LME non - ferrous metal futures prices increased. The prices of other commodities such as coal, oil, and vegetables also had corresponding changes [59][61]. - **Financial market data**: Data on various financial market indicators such as stock indices, bond yields, and exchange rates in the US and other countries are presented [71][73][76] 3.3 Local Bond One - Week Review 3.3.1 Primary Market Issuance Overview - This week, 6 local bonds were issued with an amount of 2.037 billion yuan, a repayment of 5.211 billion yuan, and a net financing of - 3.174 billion yuan. The bonds were mainly issued by Shenzhen, Hunan, and Inner Mongolia [85][87]. - No local special refinancing bonds for replacing hidden debts were issued this week. Since January 1, 2025, a total of 2.199521 trillion yuan of such bonds have been issued [90]. 3.3.2 Secondary Market Overview - The local bond stock was 54.6 trillion yuan, the trading volume was 362.073 billion yuan, and the turnover rate was 0.66%. The top three active trading provinces were Guangdong, Xinjiang, and Jiangsu, and the top three active trading terms were 30Y, 10Y, and 15Y [101]. 3.3.3 This Month's Local Bond Issuance Plan The issuance plan of Beijing from December 29, 2025, to January 2, 2026, is presented in a figure [106]. 3.4 Credit Bond Market One - Week Review 3.4.1 Primary Market Issuance Overview - This week, 211 credit bonds were issued with a total issuance of 254.432 billion yuan, a total repayment of 213.649 billion yuan, and a net financing of 40.783 billion yuan, which decreased by 16.672 billion yuan compared with last week [108]. - Specifically, the net financing of urban investment bonds was - 261 million yuan, and that of industrial bonds was 4.1044 billion yuan. By bond type, short - term financing had a net financing of - 4.4152 billion yuan, medium - term notes had 8.0004 billion yuan, enterprise bonds had - 719 million yuan, corporate bonds had 1.5045 billion yuan, and private placement notes had - 292 million yuan [109][112]. 3.4.2 Issuance Interest Rates The actual issuance interest rates and their changes of various bond types such as short - term financing, medium - term notes, and corporate bonds are presented in a table [119]. 3.4.3 Secondary Market Transaction Overview The trading volume data of credit bonds in different ratings and types are presented in a table, with a total trading volume of 626.442 billion yuan [120]. 3.4.4 Yield to Maturity The yield to maturity and its changes of various bonds such as government - backed development bonds, short - term financing, medium - term notes, enterprise bonds, and urban investment bonds are presented in tables [120][121][122] 3.4.5 Credit Spreads The credit spreads of short - term financing, medium - term notes, enterprise bonds, and urban investment bonds showed a differentiated trend, and their changes are presented in tables and figures [124][125][128] 3.4.6 Rating Spreads The rating spreads of short - term financing, medium - term notes, enterprise bonds, and urban investment bonds generally widened, and their changes are presented in tables and figures [135][137][139] 3.4.7 Trading Activity The top five most actively traded bonds of each type are presented in a table, and the industrial sector had the largest weekly trading volume of bonds [143][144] 3.4.8 Issuer Rating Changes The issuer rating or outlook improvement information of two companies, Wenzhou Transportation Development Group Co., Ltd. and Guangxi Energy Group Co., Ltd., is presented in a table [146]

Summary of Key Points from the Conference Call Industry and Company Overview - The discussion revolves around the impact of the Federal Reserve's balance sheet expansion on market liquidity, particularly focusing on the U.S. Treasury market and risk assets such as commodities and U.S. equities. Core Insights and Arguments - **Liquidity Improvement**: The Federal Reserve's balance sheet expansion is expected to enhance overall market liquidity, benefiting various asset classes, especially U.S. Treasuries. The monthly purchase plan of $40 billion in short-term Treasury bills aims to alleviate potential supply pressures in 2026 [1][2]. - **Supply Pressure on U.S. Treasuries**: By 2026, supply pressure in the U.S. Treasury market is anticipated to significantly decrease, positively impacting Treasury yields. The Fed's intervention is expected to support both short and long-term Treasury securities [1][3]. - **Risk Asset Valuation Support**: The expansion may provide substantial support for the valuation of risk assets, although the extent of this support requires further evaluation based on the pace of expansion and the relationship with the U.S. monetary base gap [1][5]. - **Long-term Treasury Market Dynamics**: The collaboration between the U.S. Treasury and the Federal Reserve is expected to optimize the supply-demand dynamics in the long-term Treasury market. Adjustments in Treasury issuance will lead to a notable decrease in net supply pressure by 2026 [1][6]. - **Market Sentiment and Economic Indicators**: Improved liquidity is likely to enhance market sentiment, potentially driving up valuations for commodities and U.S. equities. The overall economic performance and monetary policy will play crucial roles in determining the effectiveness of these measures [1][9]. Additional Important Content - **Projected Monetary Base Gap**: The estimated monetary base gap for 2026 is approximately $300 billion, considering the required reserves for maintaining commercial banks' cash asset ratios and normal operational activities [1][10]. - **Dollar Performance Outlook**: The dollar is expected to remain weak in 2026 due to the Fed's expansion, interest rate cuts, and a sluggish U.S. economy. However, it is unlikely to experience significant fluctuations due to similar challenges faced by Europe and Japan [1][11][12]. - **Impact of Fed's Actions on Market Dynamics**: The Fed's balance sheet expansion, while not traditional quantitative easing, is expected to have similar effects by improving liquidity and supporting asset prices amidst tightening global central bank policies [2][5].

Group 1 - The People's Bank of China (PBOC) announced a 400 billion MLF operation on December 25, 2025, to maintain ample liquidity in the banking system, marking the 10th consecutive month of increased MLF operations [1] - In December, 300 billion MLF is set to mature, resulting in a net injection of 100 billion after the PBOC's operation, alongside a net injection of 200 billion through reverse repos, leading to a total net liquidity injection of 300 billion for the month [1] - Analyst Wang Qing noted that the PBOC's actions aim to stabilize liquidity and support growth expectations as the year-end approaches [1] Group 2 - From August to November, the PBOC's monthly net liquidity injection through reverse repos and MLF was 600 billion, which decreased by 300 billion in December due to a decline in government bond net financing [2] - There is a possibility that the PBOC may implement a reserve requirement ratio (RRR) cut in Q1 2026 to inject larger amounts of long-term liquidity into the market [2] - The PBOC resumed government bond trading operations in October, with a net injection of 20 billion, which increased to 50 billion in November [2] Group 3 - Looking ahead to 2026, it is expected that the PBOC will utilize various liquidity tools to ensure stable and ample liquidity, which will support the smooth issuance of government bonds and encourage financial institutions to increase credit supply [2]

Consumption - Domestic demand is recovering, with service consumption potential being significant, as evidenced by high visitor numbers at Shanghai Disneyland and ongoing winter tourism demand in Hainan[3] - Automotive sales show a slight decline, with retail and wholesale volumes at near-average levels for recent years[6] - Food and beverage prices are rising due to pre-holiday stocking, with agricultural product wholesale prices reaching recent highs[6] Investment - Real estate sales are showing marginal improvement, with new home transaction area declines narrowing from 33.7% to 23.4% year-on-year[18] - Infrastructure investment is supported by improved fiscal spending, although November's spending remains below last year's levels[18] - Land transaction area has seasonally increased, but the land premium rate has dropped to 1.8%, indicating ongoing price competition[18] Trade and Export - Port operations are showing marginal improvement, with an increase in the number of outbound vessels compared to the previous week[24] - Domestic export freight rates have risen by 0.6%, with Ningbo and Shanghai seeing increases of 3.2% and 3.1% respectively[24] - The Baltic Dry Index (BDI) has dropped by 12.9% due to excess shipping capacity and seasonal factors affecting international trade[24] Production - Production rates are showing divergence across sectors, with high operating rates in formaldehyde and lithium iron phosphate, while polyester and lithium battery demand support production[26] - Steel and photovoltaic industries are experiencing mixed performance, with upstream and downstream sectors showing different trends[26] Prices and Inflation - Industrial product prices are declining, with the Consumer Price Index (CPI) showing structural differentiation in price movements across categories[42] - The Producer Price Index (PPI) continues to decline, with coal prices dropping and Brent oil prices also decreasing, reflecting weak winter demand[42] Liquidity - The Renminbi continues to strengthen, with the exchange rate against the US dollar improving from 7.0554 to 7.0410[46] - The 10-year government bond yield has decreased by 0.9 basis points to 1.83%[47]

Market Overview - A-shares remain stable with controllable risks, suggesting opportunities for low-cost investments in high-prosperity sectors. The macro strategy team indicates that market enthusiasm for chasing high prices is still weak, but the index remains relatively stable, expected to maintain a fluctuating structure with controllable risks. Signs of market stabilization have become more apparent since December, particularly in high-prosperity sectors that have shown resilience. It is recommended to preferentially invest in industries with upward trends in prosperity and patiently await the upcoming spring market [1][4][6]. Stock Market Factors - Last week, market style shifted slightly towards large-cap stocks, with a value-oriented approach gaining traction compared to the previous week. The volatility of both large-cap and value-growth styles remained low. The dispersion of excess returns among industries and the speed of industry rotation have reversed, showing an increase, while the proportion of rising constituent stocks has decreased. The trading concentration of the top 100 stocks remained stable, with a slight decline in the trading concentration of the top five industries [6][8]. Commodity Market Factors - In the commodity market, all sectors except for the black metal sector showed an upward trend in strength. The efficiency coefficients for precious metals, non-ferrous metals, and agricultural products remained high. The basis momentum for precious metals saw a significant decline, while the basis momentum for energy and black metal sectors increased. Volatility increased in all sectors except for precious metals and agricultural products, and liquidity decreased in the energy and agricultural sectors, while other sectors saw a slight increase [20][21]. Options Market Factors - The implied volatility of the Shanghai Stock Exchange 50 and the CSI 1000 rebounded from low levels last week. In terms of volatility skew, both call and put options for the Shanghai index decreased, while the put option skew for the CSI 1000 continued to rise, indicating that the market has experienced some risk release, with small-cap styles still accumulating risks [29]. Convertible Bond Market Factors - The convertible bond market stabilized and showed signs of recovery last week. The valuation of bonds reached a new high for the year in terms of the premium rate for conversion at 100 yuan, maintaining a trend of oscillation and increase. The pure bond premium rate for debt-type groupings saw a slight increase, while the proportion of low premium conversion bonds continued to decline, remaining at a low level. Market transaction volume rebounded, surpassing the historical median for the past year [31].

Group 1 - The Shanghai gold spot price on December 24 was quoted at 1012.00 CNY per gram, showing a discount of 2.68 CNY per gram compared to the futures main price of 1014.68 CNY per gram [1] - The futures market saw the Shanghai gold futures main contract close at 1014.68 CNY per gram on December 24, with an increase of 0.63%, reaching a high of 1022.88 CNY per gram and a low of 1000.50 CNY per gram, with a trading volume of 351,301 contracts [2] - The recent week saw a cumulative increase of 1,989 kg in Shanghai gold futures warehouse receipts, representing a growth rate of 2.17%, while the monthly increase was 3,285 kg, or 3.63% [2] Group 2 - The recent rise in gold prices is attributed to macroeconomic factors, particularly the monetary policies of the US and Japan, with the Federal Reserve's dovish stance and the Bank of Japan's interest rate hike contributing to market dynamics [3] - Following the easing of tensions in US-China relations after the October meeting, gold prices have shown significant fluctuations, maintaining a high level of volatility [3]

1. Report Industry Investment Ratings - The report is bullish on Europe, bearish on the US dollar, and expects the Japanese yen to appreciate [2][5][8]. 2. Core Views of the Report - In 2026, it will be a year dominated by liquidity. Ample liquidity and loose monetary policies lead to the spill - over of US dollar liquidity, rising asset prices, but the problem of de - globalization remains unsolved, and the pressure of long - term stagflation intensifies [4]. - The US economy is in a weak recovery during the interest - rate cut cycle, with a significant increase in potential stagflation pressure. The eurozone economy has stabilized, and the euro will maintain an upward trend. The Japanese yen is expected to appreciate in 2026 [1][2][3]. - The Fed's aggressive interest - rate cut policy and the expansion of US dollar liquidity will be the most important trends in 2026. The US dollar index is expected to continue to weaken significantly, dropping to around 90, with a larger decline in the second half of the year. Commodities, especially precious metals and non - ferrous metals, will continue to rise [5]. 3. Summary According to the Table of Contents 3.1 US: Accelerated Liquidity Injection and Hidden Stagflation Pressure 3.1.1 Labor Market: Accelerated Weakening Trend - In 2026, the US labor market will trend towards a significant weakening. The "inflection point" of the labor market has appeared, and the unemployment rate is expected to rise. The decline in the labor market is a gradual process, and the "atypical recession" of the labor market will continue. The problem of structural imbalance in the labor market caused by the expulsion of illegal immigrants may keep wage growth relatively high [14][16]. 3.1.2 Economic Recovery or Hidden Stagflation - In 2026, due to the mid - term elections, the Trump administration will maintain the current tariff level. US inflation is mainly driven by inflation inertia, wage growth expectations, and marginal liquidity. Liquidity injection is likely to be a neutral factor for inflation in 2026, and the overall inflation center in the US is expected to remain at around 3% year - on - year. The economy will experience a process of weakening and then slow recovery, and the real estate sector may be boosted [23][34]. 3.1.3 US Dollar: Continued Weakness - In 2026, the US dollar index will continue to weaken. The Fed is expected to cut interest rates rapidly, which will improve the liquidity within the system and relieve the government's debt pressure. Although inflation can remain relatively stable, the US dollar index will remain weak, and the real interest rate is expected to approach 0%. The Fed may face potential pressure to expand its balance sheet to maintain a relatively flat yield curve [37][45]. 3.2 Eurozone and Japan 3.2.1 Eurozone: Economic Strength and Currency Appreciation - The eurozone economy is in a continuous recovery state, with stable inflation and rising consumer and business confidence. Even if the Russia - Ukraine conflict reaches a cease - fire agreement, the EU will continue to expand its fiscal deficit. Fiscal policy is more important than monetary policy. The euro and European stocks performed strongly in 2025, and the current economic model of fiscal expansion and monetary stability is beneficial to the eurozone economy [46][58]. 3.2.2 Japan: Continued Appreciation of the Yen - Japan's economy is in a positive cycle, with rising GDP growth, inflation, consumer confidence, and corporate loan growth. The Bank of Japan will continue to raise interest rates. Although the expansion of fiscal deficit exerts downward pressure on the yen, the Fed's interest - rate cuts and the Bank of Japan's interest - rate hikes will lead to a rapid decline in the US - Japan interest - rate differential, which will cause the yen to appreciate. The expansion of US dollar liquidity is expected to offset the contraction of yen liquidity [61][83]. 3.3 Global Macroeconomy: From Loose to Ample Liquidity, from Simple to Complex Situation - In 2026, global market liquidity will shift from loose to ample, and asset prices will continue to rise. The weak US dollar will lead to the spill - over of US dollar liquidity and the rise of non - US assets. However, loose liquidity does not solve the problem of de - globalization, and more radical policies may be introduced in 2027. The Russia - Ukraine conflict is unlikely to end in the short term, and the risk premium of safe - haven assets will continue to exist. The influence of fiscal policy on the global market is increasing, which will lead to long - term and irreversible inflation [84][91]. 3.4 Investment Recommendations 3.4.1 Weak US Dollar as the Main Trend in 2026 - The Fed's aggressive interest - rate cut policy and the expansion of US dollar liquidity will cause the US dollar index to continue to weaken significantly in 2026, dropping to around 90, with a larger decline in the second half of the year [93]. 3.4.2 Obvious Opportunities in Commodities - The accelerated injection of liquidity and the potential increase in inflation pressure will boost commodities, especially precious metals and non - ferrous metals, which will continue to rise in 2026 [94].

Core Insights - The U.S. stock market experienced a broad increase, with the Dow Jones rising by 0.16%, the S&P 500 by 0.46%, and the Nasdaq by 0.57% [2] - Precious metals such as gold, silver, and copper reached historical highs, with gold prices nearing $4500 [2] - Oil prices continued to rise for the third consecutive trading day [2] Market Sentiment - The current market rally is characterized by a lack of excitement, described as "nobody opposing" rather than "everyone agreeing" [3] - The prevailing sentiment is that no news is good news, typical for year-end market behavior [3] - The simultaneous rise of gold, silver, and copper is unusual and indicates a complex market state rather than a clear directional signal [3] Asset Pricing Dynamics - Gold is priced for uncertainty, silver for liquidity and speculation, and copper for real demand and economic cycles [4] - The concurrent historical highs of these metals suggest the market is betting on conflicting global scenarios: potential improvement (copper), chaos (gold), and volatility (silver) [4] Bitcoin and Market Volatility - Bitcoin's failure to keep pace with other assets is noteworthy, as it signals market concerns about potential rule changes [4] - The VIX index has dropped significantly, reaching a yearly low, indicating short-term traders are "selling fear," while the steep VIX curve suggests long-term investors are "buying uncertainty" [4] Market Outlook - The current calm in the market is seen as a trade-off for future price movements, indicating that while short-term trends may remain upward, the rationale behind the rally is becoming increasingly difficult to articulate [4]

Market Style Characteristics - The market style during the year-end and beginning of the year shows a clear defensive characteristic, with large-cap value style prevailing while the small-cap style represented by the CSI 1000 is under pressure [1][3][8] - Institutional investors tend to adopt a conservative investment behavior due to annual performance assessments and settlements, leading to a significant reduction in risk appetite [3][8] - As the market enters the peak period for annual performance forecasts in January, uncertainty regarding earnings becomes a major concern, causing funds to flow towards more stable large-cap blue-chip stocks [3][8] Monetary Policy and Interest Rates - The central bank conducted a net injection of 219 billion yuan in the open market during the week of December 15-19, with upcoming reverse repos and MLF totaling 8.775 billion yuan [3][17] - Money market interest rates are declining, with the R007 rising by 0.7 basis points and the DR007 falling by 2.8 basis points, indicating a widening interest rate spread [3][17] Supply and Demand of Funds - The net inflow of funds in the secondary market has expanded, with a net buy of 34.2 billion yuan in financing and a net inflow of 560.8 billion yuan in ETFs [3][30] - The issuance of new equity public funds increased by 68.5 million units, while the net reduction by major shareholders rose to 121.9 billion yuan [3][30][34] Market Sentiment - The trading activity of financing funds has weakened, with the proportion of financing transactions in the A-share market decreasing to 11.3% [3][39] - The VIX index has declined, indicating an improvement in market risk appetite, while the focus on style indices and major industries has shifted towards consumer staples and discretionary sectors [3][41][45] Industry Preferences - The electronic, communication, and power equipment sectors received significant net inflows, with net inflows of 121.5 billion yuan, 67.2 billion yuan, and 47.6 billion yuan respectively [3][49] - The defense industry experienced net outflows, while the financing funds showed a net buy of 34.2 billion yuan, with the electronic sector leading the net buy [3][49]

Group 1: Economic Overview - US inflation for October and November was significantly lower than expected, with a potential rebound in December. The focus of the Federal Reserve has shifted towards addressing weak employment under a K-shaped recovery, maintaining an overall accommodative policy stance, and market expectations for interest rate cuts next year have increased [1][11] - In China, November data on consumption and investment showed weakness, indicating that domestic demand still needs stabilization. However, the recovery in export growth has supported industrial production, while retail sales were affected by the decline in government subsidies and the "Double Eleven" shopping festival [1][11] Group 2: Market Strategy - In the bond market, the funding environment remained stable, with short-term yields declining and mid to long-term yields showing volatility. The central bank is expected to implement substantial easing to lower bank funding costs ahead of potential interest rate cuts [2][12] - For A-shares, the framework indicates a bottoming of profits, but liquidity and risk appetite remain negative. The rapid decline in US CPI has raised expectations for interest rate cuts, positively impacting the offshore market [2][13] - The Hong Kong stock market is currently in a phase benefiting from liquidity but facing weak fundamentals. The improvement of the price level in 2026 will be crucial for market performance [2][13] Group 3: Commodity Insights - In the oil market, global economic fundamentals indicate weak demand, continuous supply release, and inventory accumulation, leading to sustained price pressure [3][14] - For gold, the reduction of uncertainties due to easing US-China trade tensions and a shift in focus from trade to domestic policy may lead to a gradual decrease in risk premiums, potentially slowing the pace of gold price increases while maintaining a positive long-term outlook [3][14]