This week's focus: Domestically, offline service consumption remains resilient, with subway passenger volume and movie box office performance relatively strong. However, air travel and passenger vehicle sales remain notably weak. External demand shows resilience, with rising freight indices and a slight recovery in port throughput, providing some support to the export chain. Production performance is mixed, with high-frequency data related to chemicals, petroleum, infrastructure, and real estate showing weakness, while ferrous metal production maintains resilience. Overall, this indicates that demand-side support is not yet solid, and manufacturing sector sentiment may experience a marginal decline. In terms of prices, food and most industrial product prices remain generally weak, with no widespread price recovery driven by aggregate demand improvement yet visible. On the policy front, the central bank is providing liquidity support through MLF and reverse repo operations, leading to a downward shift in the yield curve. Fiscal issuance has accelerated marginally, but local government debt constraints are simultaneously tightening. The focus going forward is on the efficiency of fund deployment and project quality. Overseas, the US-Iran conflict shows potential for temporary easing, but elevated US Treasury yields and rising interest rate hike expectations continue to suppress risk appetite.

Domestic Macroeconomics - Demand Side: (1) Consumption: Aviation demand is under pressure due to fuel costs, while offline service consumption remains resilient. As of May 22, subway passenger volume in May increased by 2.3% year-over-year. The average number of domestic flights operated was 12,000, down 7.0% year-over-year, while the average number of international flights was 1,710.8, down 2.4% year-over-year. Average daily movie box office revenue was 91.326 million yuan, up 72.8% year-over-year. In the second week of May, passenger vehicle sales were 407,000 units, down 21.9% year-over-year. (2) External Demand: Freight indices continue to rise, and port throughput shows marginal improvement. As of May 22, the May average for the Baltic Dry Index (BDI) was 3018.0, up 22.9% month-over-month and 124.2% year-over-year. The average China Containerized Freight Index was 1292.2, up 5.8% from the previous month's average and up 16.5% year-over-year. In the second week of May, port cargo throughput was 259.233 million tons, up 0.3% week-over-week but down 4.5% year-over-year. Container throughput was 6.569 million TEUs, up 0.1% year-over-year.

Domestic Macroeconomics - Production Side: Ferrous production remains high, chemical sector weakens significantly, and petroleum chain declines month-over-month. Ferrous metal production shows resilience. As of May 24, the coke oven operating rate for the month increased by 0.86 percentage points month-over-month to 74.84%; the blast furnace operating rate increased by 0.44 percentage points month-over-month to 83.58%. Automobile manufacturing remains weak. The operating rate for semi-steel truck tires this month fell by 10.52 percentage points month-over-month to 65.8%, down 7.32 percentage points year-over-year. The operating rate for all-steel tires fell by 7.32 percentage points month-over-month to 61.27%, down 2.09 percentage points year-over-year. The chemical chain continues to face pressure. PTA production declined significantly this month, with output and operating rates falling by 13.89% and 10.71 percentage points month-over-month, respectively, to 1.2148 million tons and 62.96%. The soda ash operating rate also fell by 1.04 percentage points to 81.29%. Chemical sector capacity weakened considerably this month due to excessive upstream price increases and insufficient downstream capacity to absorb high prices. The petroleum chain remains in a weak, low-level state. The refinery operating rate fell by 1.08 percentage points month-over-month to 54.11%. Petroleum-based ethylene glycol production fell by 0.58 percentage points month-over-month to 55.58%. The infrastructure and real estate chain remains weak. The petroleum asphalt operating rate this month fell by 1.31 percentage points month-over-month to 16.43%, down 13.99 percentage points year-over-year. Cement shipment rates remain low at around 40%, down 0.33 percentage points year-over-year. Overall, the Manufacturing Purchasing Managers' Index (PMI) for May is expected to show a slight weakening.

Price Performance: (1) CPI: Pork prices fluctuate at low levels, vegetable prices continue to decline. As of May 22, the average wholesale price of pork fell 1.06% week-over-week, and live hog futures prices fell 0.25%. Hog and pork prices maintained a narrow range of fluctuations this week, with market supply and demand temporarily balanced. The average slaughter weight is stable to slightly lower, slaughtering operating rates declined slightly, and stockpiling willingness is weak. Although capacity adjustment policies continue to advance and long-term industry expectations for capacity reduction are heating up, short-term upward momentum for hog prices is insufficient. For fruits and vegetables, the average wholesale price of 28 key monitored vegetables fell 1.95%, and the average wholesale price of 6 key monitored fruits fell 0.18%. Apple futures settlement prices fell 10.86% week-over-week. Vegetable prices continued to decline week-over-week. The northward shift of production sources combined with concentrated supply from surrounding production areas led to ample overall market supply, but mid-week rainfall caused some vegetable prices to rebound. Additionally, egg prices rose 2.28% week-over-week. (2) PPI: Crude oil prices remain volatile, ferrous metal prices fluctuate downward. As of May 23, WTI crude oil fell 0.76% week-over-week, while Brent crude oil rose 0.36% week-over-week. International crude oil maintained a volatile pattern overall this week. Differences remain in US-Iran negotiations, but the recovery period for Strait of Hormuz shipping capacity slightly exceeded expectations. Coupled with the high likelihood of OPEC+ implementing a symbolic small production increase at its June meeting, supply-side pressure has eased somewhat. On the demand side, US refinery operating rates remain high, and inventories are generally in a drawdown trend, providing some support for oil prices. As the late-May market expectation for the strait's opening approaches, the negotiation time for both sides is becoming increasingly tight. Close attention remains on the outcome of negotiations and the realization of expectations. For ferrous commodities, coking coal, coke, iron ore, and rebar prices fell 4.05%, 3.28%, 1.93%, and 0.28% week-over-week, respectively. Coking coal and coke prices fluctuated weakly this week, with overall market sentiment leaning weak. Accelerated resumption of domestic coal mines combined with ample multi-channel import supplies has further highlighted the loose supply situation for coking coal. High hot metal production underpins rigid demand, but downstream end-users face seasonal decline pressure. In the short term, coke may maintain a weak trend. For non-ferrous and other industrial products, copper and aluminum prices fell 3.33% and 0.72% week-over-week, respectively. Non-ferrous metal prices were pressured downward by rising US Treasury yields and increasing rate hike expectations this week. However, frequent supply-side disruptions, with production declines in major producing countries like Chile and Peru, continue the tight supply of copper ore. Bauxite supply also faces uncertainty due to Guinea-related disruptions and declining port arrivals, providing some support for copper and aluminum prices. Additionally, cement prices fell 0.54%, while glass prices rose 0.92% week-over-week.

Domestic Macroeconomics - Fiscal: Government bond issuance pace diverged this week, with local new bond issuance accelerating. This week, 30 billion yuan in general government bonds were issued, bringing the issuance progress to 41.6% (up 0.2 percentage points week-over-week). 85 billion yuan in special government bonds were issued, with progress at 23% (up 5.3 percentage points week-over-week). 8.4 billion yuan in new local government general bonds were issued, with progress at 40.5% (up 1 percentage point week-over-week, previous value 0.1 percentage points). 46.942 billion yuan in new local government special bonds were issued, with progress at 32% (up 1.1 percentage points week-over-week, previous value 0.3 percentage points). This includes 1.494 billion yuan in special new special bonds issued, with progress at 23.2% (up 0.2 percentage points week-over-week). Issuance of special government bonds and new local bonds accelerated this week, but general government bonds and special new special bonds are still progressing slowly. On May 12, a study session emphasized the need to focus on fiscal functions, closely monitor issues such as ineffective utilization of existing resources and inadequate efforts to resolve local government debt, and conduct centralized rectification through a combined vertical and horizontal approach. On May 14, the Jilin Provincial People's Congress passed a resolution requiring further strengthening of government debt management and firmly holding the debt risk warning line. The resolution stated that Jilin will strictly implement debt quota management, resolutely curb new hidden debt, and prohibit launching new projects beyond fiscal capacity. New special bond quotas will be tilted towards regions with mature projects, efficient fund use, and lower debt risks. Regions with high debt risk will, in principle, not be allowed to issue new special bonds. Simultaneously, project review, performance management, and asset supervision will be strengthened, with serious accountability for违规举债,违规用债 (illegal debt raising, illegal debt usage).

Monetary Policy and Liquidity: The government bond yield curve shifted downward. Recently, a joint working group held its fourth meeting. The meeting noted that the joint working group mechanism will continue to play a role in communication and coordination to jointly implement more proactive fiscal policy and appropriately accommodative monetary policy. Coordinated efforts with fiscal policy remain an important framework for monetary policy. This week, to maintain ample liquidity in the banking system, a 600 billion yuan 1-year Medium-term Lending Facility (MLF) operation was conducted. Maturities this month amounted to 500 billion yuan, resulting in a net injection of 100 billion yuan via this tool for the month. Net withdrawals via 3-month and 6-month outright reverse repos totaled 1 trillion yuan this month. These operations reflect the central bank's current preference for injecting longer-term liquidity. This week's open market 7-day reverse repo operations resulted in a net injection of 301.5 billion yuan. At month-end, most major money market interest rates rose. SHIBOR007 closed at 1.3650% (+5 basis points), and DR007 closed at 1.3634% (+4 basis points). The daily average volume of interbank pledged repo transactions was 8.01 trillion yuan (previous 8.19 trillion yuan), down week-over-week but still at a high level. The government bond yield curve shifted downward. The 30-year government bond yield closed at 2.2345% (-2 basis points), the 10-year at 1.7519% (-1 basis point), and the 1-year at 1.1750% (-3 basis points). The 1-year interbank certificate of deposit issuance rate for state-owned banks closed at 1.45% (+2 basis points), rising week-over-week.

Overseas Macroeconomics: A US-Iran ceasefire memorandum remains possible, but market rate hike expectations are still rising. Policies and Events: (1) US-Iran communication has made some progress, although significant differences remain. Despite an emergency weekend meeting to discuss military options, signals of negotiation progress were released mid-week to calm markets. From the weekend situation, the US has still not finalized specific military actions against Iran. Reports suggest the two countries are close to reaching a memorandum on a ceasefire. Iran expressed a desire to end the war first, then discuss nuclear issues, and efforts are underway to finalize a memorandum of understanding. However, differences regarding nuclear weapons are likely difficult to resolve in the short term. (2) Political pressure on the US administration is intensifying. A recent poll shows approval ratings are low, while dissatisfaction within the Republican party is accumulating. Some Republican senators expressed strong dissatisfaction over proposals related to compensation funds and White House renovations. The Senate adjourned without passing a key immigration funding bill, indicating a significant deterioration in relations with other important Republicans. (3) Hawkish voices within the Federal Reserve are increasing, although this may be more about managing inflation expectations than an actual shift towards rate hikes. A previously important dovish governor stated on Friday that future rate hikes or cuts are both possible; however, actual rate hikes would require conditions of inflation expectations becoming "unanchored." Following these remarks, the market priced in more expectations for rate hikes within the year. (4) The European Central Bank is highly likely to initiate rate hikes. Sources indicate a June ECB rate hike is almost certain, but post-hike communication will likely temper expectations for a July hike, as pressure for further hikes is not urgent. For the ECB, with its single inflation target and interest rates already at a neutral level, the first rate hike is easier than for the Fed.

Overseas Data: (1) The US housing market remains weak. April existing home sales were at a 1.4% monthly rate, new housing starts annualized at 1.465 million units, and building permits at 1.442 million units. Although the data exceeded expectations, levels remain low. Coupled with approximately 9 months of new home inventory and elevated mortgage rates, the housing market is expected to remain weak. (2) US PMIs continue to diverge, with manufacturing better but services declining. The May S&P Global Manufacturing PMI was 55.3, better than the 53.8 expectation, supported by AI demand and inventory building. The Services PMI fell to 50.9, with weakening employment, reflecting downward pressure on the service sector, indicating a continuation of the K-shaped economy. Simultaneously, the May University of Michigan Consumer Sentiment Index fell to a low of 44.8, suggesting consumption growth still faces downward pressure. (3) European inflation rose. April CPI increased 3% year-over-year, with a 1% monthly rate, meeting expectations. However, inflation clearly rising above the 2% target gives the ECB reason to conduct at least one future rate hike. (4) The European economy remains poor. France's May Manufacturing PMI was 48.9, and Germany's was 49.9, both below expectations. Although the Eurozone May Manufacturing PMI was 51.4, reflecting that other smaller countries are still acceptable, the Services PMI was as low as 46.4.

Overall, the 10-year US Treasury yield reaching above 4.5% this week suppressed short-term risk appetite. The US administration also faces greater pressure, making a faster agreement on a memorandum with Iran possible, while further military strikes might yield limited results. The market is still forming more hawkish interest rate expectations, while the economy continues on a path of K-shaped divergence. High volatility and high yield remain short-term characteristics.

Risk Warnings: Risks of policy implementation falling short of expectations; risks of consumer confidence recovery falling short of expectations; risks of overseas conflict escalation leading to further oil price increases.