Last Friday, Federal Reserve Chairman Powell sent a clear signal of interest rate cuts at the annual global central bank meeting. A rate cut in September is now a foregone conclusion. On that day, global stock markets soared, and A-shares barely turned red with the purchase by the national team. Unexpectedly, the same scenario played out today, with Asia-Pacific stock markets rising across the board, while A-shares plunged at one point during the session. The national team's strong buying in the afternoon led to a surge in trading volume of the CSI 300 ETF, and the Shanghai Composite Index barely turned red. The ChiNext Index, however, still closed lower. It's really sad.
I know some friends want to say, "What does the Fed's interest rate cut have to do with A-shares?"
Let's not talk about logic for now, just look at the phenomenon. Global stock markets are rising; does A-shares not belong to the global stock market? Even if A-shares have their own peculiarities, both Hong Kong stocks and A-shares are RMB assets with strong correlations, and Hong Kong stocks have also been quietly gaining strength recently.
Now, let's discuss the logic. Fundamentally, the Fed's interest rate cut has two major impacts on A-shares:
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The Fed's rate hikes mainly suppress the U.S. manufacturing and real estate sectors. However, the U.S. economy is primarily supported by consumption, which has been robust due to the massive money printing during the pandemic. Therefore, the previous data from the U.S. has consistently shown weak manufacturing PMI and strong services PMI. Overall, the U.S. economy remains strong.
As the excess savings of U.S. residents are depleted and the lagging effects of high interest rates on the economy become apparent, U.S. consumption also gradually weakens. Coupled with the downturn in manufacturing and real estate, the U.S. economy cools down. However, due to the resilience of consumption and capital expenditures in high-tech sectors like AI, the U.S. economy has not experienced a cliff-like decline. If the Fed delays the rate cut, the U.S. economy could face a hard landing.
The Fed has naturally seen this and has started to prioritize employment over inflation. They will cut rates in September, which is a preemptive rate cut, akin to refueling in the air before a potential U.S. economic recession.
In fact, the rate cut expectations have already been factored in, with the yield on U.S. ten-year bonds having fallen to 3.8%. Although the federal funds rate has not yet been reduced, market interest rates such as mortgage rates have already declined, which will inevitably stimulate a recovery in the real estate market. According to the latest data, the total number of new home sales in the U.S. in July was 739,000 on an annualized basis, the highest level since May 2023. The month-on-month increase in new home sales in July was 10.6%, the largest increase since August 2022.See, the U.S. real estate market has already rebounded, coupled with the resilience of consumption, the risk of a hard landing for the U.S. economy is quite small. As the engine of global demand, the alleviation of concerns about a U.S. economic recession is beneficial for boosting the global risk appetite. The most direct effect is that worries about our exports have significantly diminished.
Looking domestically, previously our central bank was cautious about interest rate cuts due to concerns over the exchange rate. Now that the Federal Reserve has started to cut rates, the pressure on the exchange rate will also ease, allowing our central bank to follow suit. Over the weekend, the central bank governor Pan Gongsheng stated that they are studying additional policy measures to enhance the coordination and cooperation of macroeconomic policies.
Additionally, there were several positive developments in China over the weekend, such as the further development of the western regions and the home appliance upgrade program, which are manifestations of further policy intensification.
However, the A-share market remains very sluggish today, which is disappointing but not surprising, as the current issue with the A-shares is the rapid deterioration of micro-liquidity. Although the redemption by fund investors is not as severe as the market传言, the redemption pressure is indeed real, leading to passive selling by institutions. The northbound capital is likely not yet turning, with only the national team and insurance funds buying, and these two are purchasing weight stocks. The liquidity pool as a whole is outflowing, making the market ecology very poor.
Moreover, it is now the mid-year report window, which suppresses the market's risk appetite to some extent. From my observations, many listed companies have excellent performance and have already released their performance forecasts in advance. However, after the mid-year reports are announced, the stock prices drop significantly, indicating that many funds are selling out, even though the stock prices have already adjusted considerably.
Looking at other significant news:
Over the weekend, the housing pension fund sparked heated discussions, with various self-media misinterpretations flying around. The rumored "Shanghai housing pension fund charging standards" have been debunked. The Ministry of Housing and Urban-Rural Development stated that "the individual accounts within the housing pension fund system have been established through the payment of special maintenance funds for residential buildings. The focus of the pilot is for the government to establish the public accounts." At the same time, in the interpretation of relevant policies, it was clarified that the funds in the public accounts come from public funds. According to the principle of "not increasing the burden on individuals, not reducing individual rights and interests," local governments are exploring channels for raising funds, which will not increase the burden on homeowners.
Reports indicate that Apple plans to launch new iPhones, AirPods, and watches on September 10th. In addition, Apple has intensified testing of MAC models equipped with the M4 processor. Furthermore, according to the latest list published by the United States Patent and Trademark Office, Apple has been granted a patent for a smart ring, exploring the potential of the smart ring to track the wearer's health and physiological data, as well as to further interact with other products in the Apple ecosystem.
The central bank conducted an open market reverse repo operation of 471 billion yuan for a 7-day period today, with an operation rate of 1.70%, which is consistent with the previous rate. The central bank also conducted a 300 billion yuan 1-year MLF operation, with the winning rate remaining unchanged at 2.30%. Today, there are 52.1 billion yuan of reverse repos maturing, and in August, there are 401 billion yuan of MLF maturing.
Wantai BioPharmaceutical Co., Ltd. announced that the application for marketing authorization of the nine-valent HPV vaccine, jointly developed by its wholly-owned subsidiary Wantai Canghai and Xiamen University, has been accepted by the National Medical Products Administration's Center for Drug Evaluation. Wantai BioPharmaceutical's stock price once hit the daily limit, but then experienced a plunge.Nvidia will attend the Hot Chips 2024 event held from August 25-27, showcasing the deployment of the Blackwell platform in data centers. During the briefing, Nvidia denied the rumors of a delay in the launch of Blackwell and shared more information about the data center Goliath.
Nvidia emphasized that liquid cooling will enable significant leaps in both training and inference for Blackwall, and today the liquid cooling sector is strong. Additionally, copper cables were also hot over the weekend, with some industry insiders analyzing the price reduction and order grabbing by Wal Nuclear Materials. Although Nvidia denied the delay in the launch of Blackwell, the market for AI computing power weakened significantly after InnoLight Technology announced its earnings, causing a nearly 5% drop, and Nvidia's earnings after the market on August 28 will be crucial.
Finally, a brief look at the market shows that as of the close, the Shanghai Composite Index rose slightly by 0.04%, the ChiNext Index fell by 0.10%, the Hong Kong Hang Seng Index rose by 1.06%, the Hang Seng Tech Index rose by 0.98%, and the total turnover of the two markets increased slightly to 0.52 trillion, with more than 3,800 stocks rising.
Looking at the industries, power equipment, non-ferrous metals, real estate, agriculture, forestry, animal husbandry, and other industries led the gains, while beauty care, communication, food and beverage, defense military, and pharmaceutical and biological industries led the declines.
Finally, it is emphasized once again that the Fed's interest rate cut has an absolute turning point significance for global assets. Since it is a turning point, the style before and after the turning point will inevitably change to some extent. This interest rate cut is a preemptive one, so it is highly likely that safe-haven assets such as gold will be realized after the rate cut. Do not believe in the brainwashing narrative of a bull market for gold after the rate cut. The market is complex and requires a comprehensive analysis combining economic cycles, market expectations, and the relative cost-effectiveness of assets. It cannot be simply applied, and the US stock market can continue to be optimistic.
Risk warning:
The stock market is risky, and investment should be cautious. This article does not constitute investment advice, and readers need to think independently.
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