Guotai Haitong: Loose trading conditions continue, new appointment of Federal Reserve chair is expected to reshape global monetary policy path and market space.

Guotai Haitong's research report stated that in the current global loose monetary policy cycle, the correlation between various assets is increasing, and the change of the new Federal Reserve Chair is expected to reshape the global monetary policy path and market space. In the short term, loose trading is continuing with equities and metal markets benefiting. The bank believes: 1) Regardless of the new Chair, the short-term monetary policy of the Federal Reserve may continue to be loose, with a higher probability of a weaker US dollar, but attention should be paid to the potential tapering policy and transmission. 2) For precious metals, a weaker US dollar and lower real interest rates will support the demand for gold as a currency and financial asset, and if Powell is elected, it may raise concerns about policy stability, with the third major factor potentially driving gold and other precious metals as safe-haven assets further upwards. 3) In a loose trading environment, overall favorability for global equity markets. For the Chinese equity market, with the accelerated economic transformation, sinking risk-free returns, and capital market reform, the trend of the "transformation bull" is far from over. Guotai Haitong's main points are as follows: Significant increase in global capital market correlation. Since the Fed started its rate cut cycle in September 2024, major economies like China and Europe have progressed simultaneously, leading to a loose global liquidity environment. The bank believes that this phenomenon is essentially global debt, with the core logic being to gradually reduce funding costs through debt substitution, alleviating government debt interest payment pressures. For the global market: 1) Equity markets are strengthening simultaneously, with indices such as the Nasdaq 100 and Nikkei 225 leading the way, and emerging market indices like the Shanghai Composite and Ho Chi Minh Index also performing well, with the turning point in their uptrend almost synchronous; 2) Precious metals and industrial metal prices are rising simultaneously, with financial attributes leading the expansion of physical demand attributes. The commodity market and equity market show a strong correlation, with pricing in a loose trading environment being core. The Fed's decision-making is gradually becoming more transparent and predictable, with operational mechanisms being iteratively optimized. Over the past 40 years, successive Fed Chairs have pushed for reforms, including: 1) Transition from secret to open decision-making, emphasizing adequate communication with the market before announcing rate policy. Starting from Greenspan, the Fed's rate policy decision-making began to shift towards openness and transparency, with subsequent Chairs further promoting the digestion process of market expectations for rate policy in different ways. 2) Transition from experience-driven to data-driven. Since Greenspan, the FOMC has established a large amount of economic data to support the Fed's rate decisions. 3) Constant emphasis on managing market expectations. Greenspan pushed for more transparency in FOMC decision-making, Bernanke established the mechanism of publicly disclosing rate expectations after interest rate meetings, Yellen established the interest rate projection map mechanism, and the Fed's means and tools for communicating its rate decision signals with the market have become increasingly abundant. Behind the four candidates, the core demands of the Trump administration involve intervening in Fed economic decisions. The latest candidates for the Fed are Rick Ried, Kevin Wash, Christopher Waller, and Kevin Hassett, with Ried and Wash in the forefront. The bank believes: 1) The four candidates are currently more dovish in the short term, with a high probability of a continuation of loose and high liquidity environment globally upon the new Chair taking office; 2) Popular candidate Wash enjoys an advantage due to his experience at the Fed and market trust, while Ried's industry independence and clear interest rate target are closely watched; 3) The Trump administration has a tendency to intervene in Fed decisions in multiple dimensions, which may affect policy independence, so it is necessary to pay particular attention to the candidates' relationship with the White House in the future. In the short term, loose trading is continuing, with equities and metal markets benefiting. The bank believes: 1) Regardless of the new Chair, the short-term monetary policy of the Fed may continue to be loose, with a higher probability of a weaker US dollar, but attention should be paid to the potential tapering policy and transmission. 2) For precious metals, a weaker US dollar and lower real interest rates will support the demand for gold as a currency and financial asset, and if Powell is elected, it may raise concerns about policy stability, with the third major factor potentially driving gold and other precious metals as safe-haven assets further upwards. 3) In a loose trading environment, overall favorability for global equity markets. For the Chinese equity market, with the accelerated economic transformation, sinking risk-free returns, and capital market reform, the trend of the "transformation bull" is far from over. Risk warning: Overseas economic recession exceeding expectations, global geopolitical uncertainties.