Group 1 - The core viewpoint of the article discusses the potential concerns regarding "fiscal retreat" in the second half of the year, highlighting the implications for economic performance and the need for extraordinary policy measures to counteract any downturn [3][4][5]. - "Fiscal retreat" refers to a significant drop in fiscal expenditure growth in the latter half of the year compared to the first half, particularly in years where the fiscal budget is not adjusted post-implementation [3][12]. - There is a possibility of a fiscal retreat this year, with projections indicating a potential decline in fiscal expenditure growth to between -0.4% and 2.1%, marking the lowest growth rate since 2022 [4][13]. Group 2 - Despite the potential for fiscal retreat, the actual risk of it negatively impacting the economy may be limited, as adjusted fiscal expenditure growth is estimated to remain robust, between 4.1% and 6.7% [5][15]. - The article emphasizes that even without extraordinary policy measures, the fiscal support for the economy in the second half may not be less than that in the first half, aligning with economic growth targets of approximately 4.7% to 4.8% [5][15]. - The analysis includes a breakdown of fiscal expenditure adjustments, excluding non-economic driving components and incorporating new policy financial tools to enhance fiscal capacity [16][19]. Group 3 - The July fiscal data indicates a significant rebound in public fiscal revenue, with a year-on-year increase of 2.6%, marking the highest monthly growth rate of the year [20][21]. - Tax revenue has shown consistent positive growth for four consecutive months, with notable increases in sectors such as equipment manufacturing, where tax revenue grew by over 33% [20][21]. - On the expenditure side, public fiscal spending increased by 3% in July, ending a two-month decline, with a notable focus on social welfare and infrastructure spending [33][34]. Group 4 - The article notes a narrowing of land sales revenue growth, which has implications for broader fiscal revenue, while special bonds and new special debts have supported high growth in fiscal expenditure [42][43]. - Government fund income growth has slowed to 8.9% in July, primarily due to reduced land sales revenue growth of 7.2% [42][43]. - The article highlights the importance of monitoring future policies aimed at stabilizing the real estate market, which could impact fiscal revenue positively [42][43].

Group 1: Fiscal Performance Overview - In July, the broad fiscal revenue increased by 3.6% year-on-year, compared to 2.8% in June[1] - Broad fiscal expenditure in July rose by 12.1% year-on-year, down from 17.6% in June[1] - The public fiscal revenue in July marked the highest monthly growth of the year, with tax revenue showing positive growth for four consecutive months[15] Group 2: Concerns about Fiscal Decline - "Fiscal decline" refers to a significant drop in expenditure growth in the second half of the year if no budget adjustments are made[2] - There is a risk of fiscal decline this year, with potential expenditure growth ranging from -0.4% to 2.1% in the second half, marking the lowest since 2022[9] - The gap between the first and second half of the fiscal expenditure growth could reach 6.8% to 9.3%, the largest since 2022[9] Group 3: Economic Impact and Adjusted Expenditure - Even without extraordinary fiscal policies, the adjusted fiscal expenditure growth in the second half is estimated to be between 4.1% and 6.7%, comparable to the first half's 4.5%[10] - The adjusted fiscal expenditure growth aligns with the economic growth target of approximately 4.7% to 4.8% for the second half[10] - The analysis suggests that the actual economic support from fiscal measures may not be significantly lower than in the first half[10] Group 4: Sector-Specific Insights - Tax revenue from the manufacturing sector, including railways and aerospace, saw significant monthly growth rates of over 33%, 10%, and 8% respectively[18] - Social welfare expenditures contributed 3.5 percentage points to the expenditure growth in July, while infrastructure spending had a negative impact of 0.7 percentage points[33] - Government fund income growth slowed to 8.9% in July, primarily due to a decrease in land sale revenue growth to 7.2%[45]

Investment Rating - The report suggests a strategy of buying U.S. Treasury bonds on dips, indicating a positive outlook for the bond market as the Federal Reserve may resume easing policies [4][12]. Core Insights - U.S. CPI inflation data for February 2025 showed a decline, with the year-on-year growth rate dropping to 2.8%, below market expectations of 2.9% [4][5]. - The Federal Reserve is expected to restart rate cuts mid-year, with a total of two cuts (50 basis points) anticipated for the year [4][9]. - Consumer confidence has significantly weakened, as indicated by the University of Michigan's consumer expectations index falling to 64.7, the lowest since December 2023 [7]. Summary by Sections Macroeconomic Analysis - February's CPI inflation decreased by 0.2 percentage points to 2.8%, while core CPI fell to 3.1% [4][5]. - The inflation peak has passed, with a notable decline in consumer spending and a potential contraction in Q1 2025 [7][19]. - The report highlights that service prices are supported by housing costs and wage growth, while core service price growth has slowed to 4.1% year-on-year [7][8]. Strategy Recommendations - The report recommends buying U.S. Treasuries when the 5-year yield approaches 4.3% and the 10-year yield approaches 4.5% [12][13]. - A shift towards a neutral foreign exchange trading strategy is suggested, with a long-term view of buying the U.S. dollar on dips [12][13]. Fiscal Outlook - The U.S. fiscal deficit reached $1.15 trillion from October 2024 to February 2025, a 38.5% increase year-on-year [9]. - By March to September 2025, the fiscal deficit is projected to be limited to $720 billion, a decrease of 28.4% compared to the previous year [9].

Core Viewpoint - The article highlights that the February CPI inflation data in the U.S. fell below market expectations, indicating a potential shift in monetary policy as the Federal Reserve may consider rate cuts in the middle of the year [1][2][8]. Macroeconomic Analysis - The February CPI inflation rate decreased to 2.8%, down 0.2 percentage points from the previous month, while core CPI fell to 3.1%, also down 0.2 percentage points, marking a new low in the current inflation cycle [2][8]. - The decline in inflation marks the end of a four-month rebound, with commodity prices driving volatility and service prices dictating the overall trend [2]. - Consumer confidence has significantly weakened, with the University of Michigan's consumer expectations index dropping to 64.7, the lowest since December 2023, leading to a steep decline in U.S. goods consumption [2][4]. - Core goods prices saw a month-on-month decrease of 0.1 percentage points to 0.2%, with energy goods dropping 2.8 percentage points to -0.9% [2][4]. Service Price Dynamics - Service prices continue to be supported by housing costs and wage growth, with core service prices decreasing by 0.2 percentage points to 4.1% year-on-year [4][8]. - Housing inflation remains resilient, with rent inflation stable at 0.3% month-on-month and year-on-year growth above 4% [4][8]. - Wage growth in the private service sector remains strong at 4.1%, contributing to sustained non-housing service inflation at 3.9% [4][8]. Forward-Looking Inflation Expectations - Inflation is expected to remain above the 2% target, with an anticipated average around 3% for the year, influenced by tariff impacts and fluctuating oil and used car prices [8][11]. - The Federal Reserve is likely to restart rate cuts mid-year, with expectations of two rate cuts totaling 50 basis points due to a projected decline in fiscal space [11][12]. Investment Strategy - The article recommends taking long positions in U.S. Treasuries, suggesting entry points at approximately 4.3% for 5-year yields and 4.5% for 10-year yields, given the likelihood of renewed monetary easing [14][15]. - The market's reaction to lower-than-expected inflation has been muted, with a slight increase in U.S. Treasury yields across various maturities [14][15].