Galaxy Securities: The Fed's rate cut cycle is coming, focusing on opportunities in A-share gold leading stocks

According to the Wise Finance APP, Galaxy Securities released a research report stating that Federal Reserve Chairman Powell indicated a high probability that the Fed will start cutting interest rates at the September monetary policy meeting. The recent unexpected decline in the U.S. job market has strengthened expectations of a "hard landing" for the U.S. economy. Looking back at history, during U.S. recessions since 1948, gold has shown a clear advantage over other assets, with its price winning rate and return far exceeding that of U.S. stocks and other commodities. If the U.S. economy and employment data further decline, it will increase market expectations of a recession and the extent of Fed rate cuts, benefiting gold. It is recommended to pay attention to A-share gold leading stocks such as Shandong Gold (600547.SH), Zhongjin Gold (600489.SH), Yintai Gold (000975.SZ), and Chifeng Gold (600988.SH).

Galaxy Securities believes that macro expectations dominate metal price fluctuations, and with the peak season approaching, there is marginal improvement in demand for non-ferrous metals. In early August, due to the unexpected decline in U.S. July employment and economic data, market expectations of a U.S. economic recession intensified. The unwinding of yen carry trades by the Bank of Japan exacerbated market volatility, leading to significant fluctuations in non-ferrous metal commodity prices under the "recession trade". However, subsequent data showing U.S. retail sales in July and initial jobless claims in early August exceeding expectations eased concerns about a U.S. economic recession, stabilizing market sentiment and leading to a rebound in non-ferrous metal commodity prices. Federal Reserve Chairman Powell's clear signal at the Jackson Hole Global Central Bank Annual Meeting that the Fed is about to cut interest rates also supported the rebound in metal prices. Additionally, although there is no clear improvement in domestic economic recovery momentum, with the downstream peak season of "Golden September and Silver October" approaching, there has been marginal improvement in demand for non-ferrous metals in August, with signs of destocking in domestic inventories of major non-ferrous metal varieties such as copper and aluminum. With price stabilization, rebound, and improved downstream consumption, it is expected that the non-ferrous metal industry's business outlook will further rebound in September.

In the second quarter of 2024, the performance growth rate of A-share non-ferrous metal industry reversed. Two key macroeconomic logics that have plagued the non-ferrous metal industry in the first half of 2024 have marginally turned positive. China's first-quarter GDP growth rate of 5.3% exceeded expectations, and the March manufacturing PMI returned to the expansion range, showing signs of accelerated economic recovery at the end of the first quarter; Overseas, Federal Reserve Chairman Powell hinted during his March congressional testimony that 2024 is an appropriate time for a monetary policy shift by the Fed, with the Fed's March monetary policy meeting dot plot predicting three rate cuts in 2024, signaling the start of a new rate-cutting cycle by the Fed. The potential for economic improvement domestically and expectations of Fed rate cuts first drove the most sensitive gold, copper, and aluminum prices to surge in March and April, leading to a rise in other non-ferrous metal commodity prices and restricted supply of minor metals, significantly boosting the overall business outlook and profitability of the non-ferrous metal industry. This led to a reversal in industry performance after nearly two years of downturn in 2024. Specifically, in the first half of 2024, the operating income of A-share non-ferrous metal industry increased by 1.38% year-on-year, while performance decreased by 1.62% year-on-year In the second quarter of 2024, the operating income of the non-ferrous metals industry increased by 6.58% year-on-year, and performance increased by 27.95% year-on-year.

Risk Warning: 1) Risk of a significant decline in non-ferrous metal prices; 2) Risk of domestic economic recovery falling short of expectations; 3) Risk of the Federal Reserve's interest rate cuts falling short of expectations; 4) Risk of global geopolitical confrontations exceeding expectations; 5) Risk of lower-than-expected downstream demand for non-ferrous metals