Galaxy Securities: The Fed's interest rate cut cycle is coming, pay attention to the opportunities of A-share gold leading stocks.

Galaxy Securities released a research report stating that Federal Reserve Chairman Powell said that the Fed is highly likely to start cutting interest rates at its 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. recession periods since 1948, gold has shown a clear advantage compared to other assets, with its win rate and return rate far exceeding that of U.S. stocks and other commodities. If the U.S. economy and employment data continue to decline, it will increase market expectations of a recession and the extent of the Fed's interest rate cuts, benefiting gold. It is recommended to pay attention to A-share gold leading stocks such as Shandong Gold Mining (600547.SH), Zhongjin Gold Corp., Ltd (600489.SH), Yintai Gold (000975.SZ), Chifeng Jilong Gold Mining (600988.SH) for relative opportunities. Galaxy Securities believes that macro expectations dominate metal price fluctuations, with marginal improvements in demand for non-ferrous metals as the peak season approaches. 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, exacerbated by the unwinding of yen carry trades as the Japanese central bank raised interest rates, leading to market volatility. Under the shadow of the "recession trade," prices of non-ferrous metals and commodities fluctuated significantly. However, subsequent data on U.S. retail sales in July and weekly initial jobless claims in early August exceeded expectations, easing concerns about a U.S. economic recession and stabilizing market sentiment, leading to a rebound in prices of non-ferrous metals and commodities. 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 metals prices. Although the domestic economic recovery has not shown a significant improvement, with the August manufacturing PMI down to 49.1%, below the boom-bust line for the fourth consecutive month, the upcoming peak season for downstream consumption in September may lead to marginal improvement in demand for non-ferrous metals, with signs of destocking seen in copper and aluminum inventories. With stable prices and improved downstream consumption, it is expected that the non-ferrous metals industry will see further improvement in business conditions in September. In Q2 2024, the performance growth of A-share non-ferrous metals industry reversed. In the first half of 2024, two key macroeconomic logics that have plagued the non-ferrous metals industry saw marginal positive changes, with China's first-quarter GDP growth rate of 5.3% exceeding expectations and the March manufacturing PMI returning to the expansion range, showing signs of accelerated economic recovery at the end of the first quarter; Federal Reserve Chairman Powell hinted during his March testimony to Congress that 2024 was an appropriate time for a monetary policy turnaround, with the Fed's March meeting dot plot predicting three rate cuts in 2024, signaling the start of a new rate-cutting cycle. Expectations for economic recovery and liquidity improvement in China, along with the anticipation of Fed interest rate cuts, first drove the prices of gold, copper, and aluminum, which are most sensitive to economic recovery and liquidity improvements, to surge in March and April, leading to a rise in the prices of other non-ferrous metals and rare metals with limited supply, significantly boosting the overall business conditions and profitability of the non-ferrous metals industry and ultimately reversing the industry's performance after nearly two years of downturn. Specifically, in the first half of 2024, the operating income of the A-share non-ferrous metals industry increased by 1.38% year-on-year, while performance decreased by 1.62% year-on-year; in Q2 2024, the quarterly operating income of the non-ferrous metals industry increased by 6.58% year-on-year, with performance increasing by 27.95% year-on-year. Risk Warning: 1) Risks of significant decline in non-ferrous metal prices; 2) Risks of slower than expected economic recovery in China; 3) Risks of Fed interest rate cuts falling short of expectations; 4) Risks of unexpected global geopolitical confrontations; 5) Risks of lower than expected downstream demand for non-ferrous metals.