Post-Holiday Market Peaks and Retreats; Precious Metals Defy Trend

In the first week following the National Day holiday, major commodities such as crude oil and rubber experienced a surge and subsequent retreat, leading to significant fluctuations in the overall sector.

From October 8th to October 13th, in the domestic futures market, within the energy and chemical sector, fuel oil rose by 15.05% for the week, and crude oil increased by 4.95%. In the black series sector, iron ore fell by 3.96% for the week, and coking coal dropped by 4.01%. In the base metals sector, lithium carbonate fell by 7.34% for the week, Shanghai nickel rose by 1.17%, Shanghai zinc increased by 0.92%, and Shanghai copper fell by 2.04%. In the agricultural products sector, palm oil rose by 3.24% for the week, eggs fell by 2.68%, and live pigs dropped by 4.14%.

Hot trading topics:

Hotspot 1: International gold prices end a six-day losing streak, with the precious metals sector showing strength against the market trend.

On October 11th, the precious metals sector showed strength against the market trend. By 2 pm on the 11th, Xiaocheng Technology's stock price increased by over 6%, Western Gold and Shandong Gold International both rose by more than 4%, with Yulong Shares and China National Gold following suit.

In terms of gold prices, poor U.S. employment data led to increased expectations for interest rate cuts, causing gold prices to fluctuate and rise. As of the close on October 10th, COMEX gold futures rose by 0.81% to $2647.3 per ounce. Prior to this, international gold prices had recorded six consecutive days of losses.

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In terms of news, data released by the U.S. Bureau of Labor Statistics on Thursday showed that the September CPI rose more than expected on a monthly and annual basis. The number of initial jobless claims last week reached a one-year high, indicating that inflation persistence still exists and the labor market is weak, putting pressure on the market.

Xu Kunhan, the head of precious metals strategy analysis at Industrial and Commercial Bank of China, analyzed that there is a divergence within the Federal Reserve on the extent of interest rate cuts, and further rate cuts within the year are uncertain. The fundamentals of gold still have support, and the decline in international gold prices is limited.

After March and April 2024, influenced by expectations of interest rate cuts, inflation, and geopolitical risks, gold prices began a rapid rise and then remained at a high level for consolidation. The demand for investment gold and gold jewelry showed a significant divergence, with the terminal performance of gold jewelry being weak. After this interest rate cut, the initial expectations for gold prices are expected to narrow the impact on the terminal sales of gold jewelry. Coinciding with the September order meeting and the subsequent National Day Golden Week, the confidence of distributors may be repaired to a certain extent, and consumers' wait-and-see attitude towards gold prices may narrow. In addition, with the Federal Reserve's interest rate cut, the gold jewelry sector, as a cyclical optional consumption, may see a certain degree of repair in sector valuation.

A research report from Haitong Securities pointed out that, looking at the cash flow statement and balance sheet of the sector, the investment cash flow of gold companies has continued to remain at a high level, and the balance of construction in progress has continued to grow rapidly. The growth rate of the gold sector may be sustainable, and the industry share is expected to continue to increase. The bull market for gold is expected to continue, and the fundamentals of gold companies may continue to improve.Guotai Junan Securities pointed out that in the medium to long term, gold, as an alternative to non-US assets, will gradually highlight its safe-haven attributes when economic downward pressure heats up. It is expected that global central banks will continue to increase their holdings of gold, and non-speculative positions will support gold prices when the Federal Reserve's easing is less than expected or the timing of rate cuts is postponed. In the long run, gold prices will continue to benefit from the dual logic of the Fed's interest rate cut space and safe-haven premium.

Hotspot Two: The situation in the Middle East slightly eases, and the risk in the crude oil market falls back.

Affected by the easing of conflicts in the Middle East, the risk premium in the crude oil market has significantly fallen back this week. On October 9th, oil prices ended the week's rise, with the domestic SC crude oil main contract falling by more than 3%, closing at 562.0 yuan/barrel; the low-sulfur fuel oil main contract fell by more than 3%, while the high-sulfur fuel oil main contract closed up by nearly 2%.

"The main reason for the decline in oil prices on October 9th was the retreat of geopolitical risk premiums," said Dong Chao, a senior analyst at Shenyin & Wanguo Futures Energy and Chemicals, introducing that after Iran's missile attack on Israel on October 2nd, Israel has repeatedly stated that it will retaliate, and counterattacks on Iranian oil and even nuclear facilities are also under consideration. However, Israel has not taken action for a long time, and the market's risk aversion has cooled down. However, before Israel really takes action, all possibilities cannot be ruled out.

According to He Haoyun, a senior researcher at CITIC Futures Research Institute, Iran's current crude oil production is around 3.2 million barrels/day, crude oil exports are around 1.7 million barrels/day, and refinery capacity is around 2.6 million barrels/day, accounting for about 4% of global production. About 90% of Iran's crude oil exports are destined for China, and the impact of sanctions and other means on Iran's supply is limited, and the impact on the market mainly depends on Israel's military actions.

Specifically, He Haoyun said that if Israel chooses to attack Iran's oil production or export facilities, it may lead to a disruption of more than 1 million barrels/day of crude oil supply, which will support the strong rise in oil prices; if Israel chooses to attack Iran's refineries, Iran may need to obtain petroleum products from other channels, and may also force Iran to reduce crude oil production, but Iran can also alleviate the pressure of production reduction by increasing exports, and the risk of oil price rise is relatively moderate; if Israel chooses to attack non-core oil facilities or not attack oil facilities, after the expectation of supply reduction is proven wrong, the geopolitical premium will be given up.

"After Iran's attack on Israel in April this year, Israel responded to Iran on April 19th, and Israel is also likely to respond to this incident," Dong Chao said. If Israel's retaliation in the later period is within a certain intensity and does not hit Iran's crude oil facilities, the probability of oil prices continuing to fall is high. However, if its retaliation affects Iran's crude oil production, it will have an immeasurable impact on oil prices. If Iran chooses to block the Strait of Hormuz in response, it may lead to a repeat of the oil crisis in the 1970s.

Yang An, the person in charge of Haitong Futures Energy Research and Development Center, said that during the National Day holiday, international oil prices once rebounded by nearly $12/barrel from a low level, which has been the strongest rebound in the second half of the year for the crude oil market, and there are already some profit-taking funds that are willing to leave the market, and there is a need for overbought repair, which is one of the reasons for the rapid decline in international oil prices yesterday; on the other hand, before the Middle East geopolitical situation becomes more tense, oil prices temporarily lose the energy to rise. On the first trading day after the festival, the commodity market staged a sharp decline after opening high, and the unstable market sentiment also has an important impact on the high position of crude oil.

Goldman Sachs said in a report on Wednesday that the geopolitical risk premium of this week's oil prices has slightly decreased, as the implied volatility of Brent crude oil and the so-called option implied volatility both rose sharply in the previous week.

"At present, the supply of the crude oil market has not been affected by the Middle East geopolitical factors, so the monthly difference structure that reflects whether the crude oil market supply is tight has always performed relatively moderate. However, the further escalation of tensions between Israel and Iran may affect the stability of oil supply in the Middle East. Once Israel attacks Iran's oil facilities, it may bring a premium of $5-10/barrel to crude oil, and if Iran takes extreme measures to block the Strait of Hormuz, it will cause an imbalance in the supply and demand of the crude oil market, and oil prices may get out of control," Yang An said.At present, OPEC+, with a large amount of idle production capacity, is seen by the market as an alternative supplier of crude oil. According to He Haoyun, OPEC+ has abundant spare production capacity, with different statistical口径s showing spare production capacity between 5 million and 7 million barrels/day. The current market share of OPEC+ has dropped to about 49%, a new low since the organization was established, with countries like Saudi Arabia, which have continued to reduce production, suffering greater losses in market share. If there is a significant reduction in Iranian supply, it would be an opportunity for the remaining OPEC+ member countries to regain market share.

"Currently, OPEC+ has not changed its plan to increase production starting from December this year. According to the current plan, OPEC+ will completely exit the voluntary production cut of 2.2 million barrels/day next year, which is basically enough to cover the extreme case of Iran's reduced production. From a medium-term perspective, the probability of Iran's potential production reduction causing a comprehensive supply shortage is not high," He Haoyun believes.

Dong Chao said that if there is a supply gap in Iran, the United States is likely to ask OPEC countries such as Saudi Arabia to increase production to fill the gap. However, considering the attitude of Russia within OPEC+ and Iran's actions as an Islamic country against Israel, it is expected to be difficult for Saudi Arabia to increase production to maintain prices. In addition, Biden visited Saudi Arabia and the UAE in 2022, asking them to increase production to reduce oil prices. At that time, the two countries only symbolically increased production for one month, so it is difficult for the United States to ask OPEC to take additional actions now. However, if the market later believes that geopolitical risks are gradually diminishing, everyone will return to the negotiation table, and the risk premium will gradually narrow or even disappear, returning to the current basic situation of crude oil.

Rob Thummel, manager of the energy asset management company Tortoise, proposed that the main difficulty in OPEC+ increasing production to ensure supply may lie in the fact that the oil suppliers filling the gap are Saudi Arabia or Kuwait, and this oil needs to be transported through the Strait of Hormuz.

"OPEC+ itself has the intention to increase production. If such an opportunity arises, it will definitely actively increase production. However, the uncertainty of geopolitical risks may pose challenges to OPEC+ increasing production," Yang An said. Currently, the oil market itself has limited driving force for oil price increases from the supply and demand side. The core driving force for the rise in oil prices since October has been the progress of the conflict between Israel and Iran. Recently, the market first focuses on the way and strength of Israel's counterattack, which is also the greatest uncertainty in the current oil market.

Industry policy news

News 1: Behind the "Great Turn", there are serious disagreements within the Federal Reserve.

After last week's better-than-expected US non-farm report, the latest data also show that US inflationary pressures have not dissipated.

On October 10, Eastern US time, data released by the US Department of Labor showed that the year-on-year growth rate of the US CPI in September fell from 2.5% in August to 2.4%, a decline for six consecutive months, with a month-on-month increase of 0.2%, slightly higher than expected; the core CPI in September grew by 3.3% year-on-year, with a month-on-month increase of 0.3%, also slightly exceeding expectations. After the data was announced, the three major stock index futures before the US stock market fell.

Driven by factors such as housing and food, the inflation data in September slightly exceeded expectations. However, the data also has two sides. From an optimistic perspective, the trend of inflation has not gone off track, and the market still expects the Federal Reserve to cut interest rates by 25 basis points in November. Huang Jiacheng, Managing Director of Invesco and Head of Fixed Income for Asia-Pacific, told reporters from the 21st Century Economic Report that although the road to US inflation decline is not smooth, it is gradually approaching the 2% target as a whole. Recently, both CPI and PCE price indices have been declining, and inflation can be controlled in the future. The job market has cooled down but still has resilience. The basic situation of the US economy is a soft landing.Recent CPI and non-farm data also confirmed the rationality of the divergence at the Federal Reserve's September meeting. The Federal Reserve's "great pivot" seems like yesterday, at the September meeting, 11 out of 12 voters supported a 50 basis point rate cut, with only Federal Reserve Governor Bowman voting against, supporting only a 25 basis point rate cut. But the actual divergence is even greater, with far more than one voter internally opposed to a 50 basis point rate cut. The minutes of the meeting released on October 9, Eastern Time, showed that the divergence among Federal Reserve officials was far greater than it appeared on the surface, with "some" officials supporting a smaller 25 basis point rate cut. Some officials also emphasized that there was a "reasonable justification" for lowering interest rates by 25 basis points at the end of July meeting.

StanChart China Wealth Management's Chief Investment Strategist, Wang Xinjie, told 21st Century Economic Report that before September 18, Wall Street had not reached a consensus on the magnitude of the Federal Reserve's rate cut, and at the decision-making stage, a "vast majority" of participants supported a 50 basis point rate cut.

Despite some divergence, the consensus among Federal Reserve officials is that the downward risks to the U.S. job market have increased, and they are more confident in the sustained decline of inflation to the target. On this basis, the Federal Reserve made the decision to cut rates by 50 basis points. In Wang Xinjie's view, the Federal Reserve's 50 basis point rate cut in September was in line with the economic environment at the time, especially the cooling of the labor market, which needed to provide support for a soft landing of the U.S. economy.

In the medium to long term, the intensity of the Federal Reserve's rate cut cycle at the beginning is not the key issue. As some Federal Reserve officials have said: The more important issue is the overall path of policy normalization, not the specific magnitude of the first rate cut at the September meeting. The future path of the Federal Reserve's monetary policy still requires more economic data to depict, and uncertainty will be the norm.

After a series of recent data unexpectedly showed a strong U.S. economy, traders significantly reduced their expectations for the Federal Reserve's rate cuts. Under the data-dependent model, the Federal Reserve will be more cautious. There is no doubt that the Federal Reserve will continue to cut rates in the future, but the specific path is full of suspense.

For the November meeting, the market's focus has shifted from whether the Federal Reserve will "cut rates by 25 or 50 basis points" to "cut rates by 25 basis points or not at all."

Banking Research Institute Senior Researcher Wang Youxin analyzed that the recent improvement in U.S. labor data has allowed the Federal Reserve's policy stance to "shift from dovish to hawkish," but considering that the U.S. economy still faces downward pressure, the Federal Reserve will continue to cut rates. However, the future magnitude of rate cuts may be more cautious and gradual, with the more common 25 basis point rate cuts reflecting the Federal Reserve's cautious judgment of the economic situation and the need for policy normalization.

Barclays expects the Federal Reserve to cut rates by 25 basis points in November and December, and to cut rates three more times in 2025, in March, June, and September, each by 25 basis points, bringing the target range to 3.5% to 3.75% by the end of 2025.

Dallas Fed President Logan said she supported last month's substantial rate cut but hopes for smaller rate cuts in the future, as the risk of inflation rising is still real, and there is significant uncertainty in the economic outlook. Further easing of the financial environment may stimulate spending and push demand beyond supply, a risk that indicates the Federal Reserve should not rush to lower the federal funds target rate to a "normal" or "neutral" level. The Federal Reserve "should gradually proceed with rate cuts while monitoring financial conditions, consumption, wages, and price trends."

Looking ahead, Invesco Managing Director Huang Jiachen told reporters that the Federal Reserve's monetary policy depends on U.S. economic data. Now that the U.S. is in the later stages of the economic cycle and has already started to cut rates, it is expected that the Federal Reserve will cut rates three times in 2024, and will cut rates at every meeting in 2025 until the interest rate reaches a target range of 3% to 3.25%.Breaking News II: Intensified Yen-Dollar Game After the Holiday, Central Parity Exceeds Expectations and Rebounds

After a significant devaluation of 635 basis points on the first trading day following the National Day holiday, the central parity rate of the Chinese yuan against the US dollar has gradually "recouped its losses."

On October 9th, the central parity rate of the Chinese yuan against the US dollar was reported at 7.0568, an increase of 141 basis points from the previous trading day.

A Hong Kong bank foreign exchange dealer pointed out to reporters that the main reason for the sharp decline of 635 basis points in the Chinese yuan's central parity rate on the first trading day after the holiday was due to three major factors. First, during the holiday, the US dollar index rebounded from 100.92 to around 102.5, leading to a passive devaluation of the Chinese yuan exchange rate. Second, the strong US non-farm employment data for September led Wall Street to believe that the Federal Reserve would only cut interest rates by 25 basis points in November, lower than the previously expected 50 basis points, adding additional downward pressure on the Chinese yuan. Third, the 10-year US Treasury yield recaptured the 4% mark, causing the China-US interest rate differential to widen again to -183 basis points, dragging down the valuation of the Chinese yuan exchange rate. "However, the strong bullish sentiment of global capital towards Chinese financial assets is supporting the gradual recovery of the Chinese yuan exchange rate," he said.

"Throughout the holiday period, overseas capital has been actively discussing buying Chinese stock assets, leading many investment institutions to optimistically expect that even if the US dollar index rebounds to around 102.5, the Chinese yuan exchange rate central parity rate may hover between 7.03 and 7.05, allowing the Chinese yuan spot exchange rate to smoothly recover the 7 integer mark after the holiday," the Hong Kong bank foreign exchange dealer told reporters.

Faced with the unexpected devaluation of 635 basis points in the Chinese yuan's central parity rate against the US dollar on the first trading day after the holiday, he frankly stated that the foreign exchange market felt somewhat "at a loss," directly leading to the Chinese yuan exchange rate falling to the 7.08 level at one point on October 8th. In his view, behind this, many foreign banks and large asset management institutions are reassessing the reasonable range of the Chinese yuan exchange rate.

The Hong Kong bank foreign exchange dealer pointed out that the main capital force affecting the Chinese yuan exchange rate in the past two trading days has become foreign hedge funds. Because while they are actively buying Chinese stock assets, they are also "incidentally" betting on the continuous appreciation of the offshore Chinese yuan exchange rate.

Specifically, many overseas hedge funds currently use the Hong Kong dollar overnight Hibor interest rate as a benchmark to judge the strength of global capital's bottom-fishing in Chinese stock assets—as long as the Hong Kong dollar overnight Hibor interest rate continues to be at a historically high level, it indicates that global capital is increasing its efforts to exchange dollars for Hong Kong dollars in order to buy Chinese assets in Hong Kong stocks.

Data shows that on October 7th, the Hong Kong dollar overnight Hibor interest rate once hit a historical second high of 5.4687%, just below the historical peak of 6.3926% set on September 30th, indicating that overseas capital's enthusiasm for buying Chinese stock assets remains high. This无形地 gives overseas hedge funds great confidence to buy the offshore Chinese yuan exchange rate near 7.08, thereby promoting both the Chinese yuan spot exchange rate and the central parity rate to gradually "recoup their losses."

Looking forward to future performance,Energy and Chemical Sector

Crude Oil: During the National Day holiday, influenced by geopolitical conflicts, international oil prices surged significantly. On the 8th, domestic crude oil futures hit the upper limit at the opening, with oil prices fluctuating in a strong trend. Since August, geopolitics and extreme weather have become important drivers in the oil market, with strong uncertainty, especially as the contradictions between Iran and Israel have intensified. The market is concerned about Israel's potential strikes on Iran's energy facilities and worries about Iran blocking the Strait of Hormuz, leading to rising oil prices. From the perspective of supply and demand fundamentals, there is strong pressure on oil prices. Firstly, it is entering the off-season for consumption; secondly, OPEC+ is expected to increase production by the end of the year; and thirdly, China's crude oil imports have retreated. For the current market situation, we believe the core is to control risks and recommend protecting positions through options. (Zhonghui Futures)

Black Series Sector

Iron Ore: Before the holiday, policies exceeded market expectations, and macro expectations continued to improve. On September 24th, the central bank announced a reduction in the reserve requirement ratio and policy interest rates, adjusted real estate loan policies, lowered existing mortgage interest rates, and unified mortgage down payment ratios. On September 26th, the Politburo meeting emphasized the need to increase fiscal policy, with the real estate market's tone being "stabilizing after a decline." On the evening of September 29th, the Ministry of Housing and Urban-Rural Development and the central bank intensively deployed policies to optimize purchase restrictions and adjust mortgage interest rate policies, entering an unprecedentedly relaxed policy environment for the real estate market. In addition, the National Development and Reform Commission will hold a press conference on the first day after the holiday to implement a package of incremental policies, and the current market's macro policy expectations remain positive. In terms of the industry, iron ore demand continues to increase slightly but is still limited, while supply remains high. The fundamental improvement of iron ore is limited, and the market sentiment is high due to the stimulation of macro policies in the short term, with expectations of a strong trend in fluctuations. (Hualian Futures)

Nonferrous Metals Sector

Shanghai Lead: This week, the main futures price of Shanghai lead fluctuated in a bearish trend. On the macro level, the unexpected growth of inflation in the United States in September, combined with the latest unexpectedly strong non-farm employment data, increased the uncertainty of interest rate cuts in November. Fundamentally, during the holiday, primary lead and secondary lead smelters operated stably, but most downstream manufacturers took holidays ranging from 2 to 5 days, leading to a temporary disappearance of lead ingot consumption. Additionally, this year's holiday spot market performance was relatively flat compared to previous years, with weaker downstream stockpiling momentum before the holiday, and smelters had no holiday delivery schedules related to market transactions. The expectation of inventory accumulation is relatively large, and lead prices are expected to fluctuate and weaken. After the gradual digestion of previous macro-positive sentiment, lead prices may gradually return to the fundamentals, and it is necessary to pay attention to the actual consumption situation of positive news. In terms of spot goods, this week's Shanghai lead price center shifted downward, with many holders selling at a discount. At the same time, as the delivery date approached, some holders waited to deliver to the warehouse, and the quotes were slightly firm. Downstream enterprises were willing to purchase on demand at lower prices, and purchases were more inclined towards primary lead factory supplies, with relatively improved spot transactions. (Ruida Futures)

Agricultural Products Sector

Live Pigs: Despite the increase in the second育 (rearing) volume after the holiday, market confidence is insufficient. The spot market is sluggish, and funds take the opportunity to suppress the distant months, leading to a deeper discount in the near months. The current market faces a contradiction between weak drivers and high discount levels on the plate, and whether the pessimistic expectations for the distant months can be realized and how the lack of accumulation leading to the absence of large fat pigs will affect future standard pig prices. There is a game between weak drivers and low valuations, and it is recommended to temporarily observe. (Minmetals Futures)