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Less worries about stock trading

Market expectations for the Federal Reserve's interest rate cut are rapidly rising.

US stocks plummet

After falling sharply for two consecutive trading days, the three major U.S. stock indexes opened sharply lower again on August 5, local time. The Dow Jones Industrial Average fell more than 2.6% at the opening, the S&P 500 fell more than 4.1%, and the Nasdaq fell more than 6.3%. Technology stocks were sold off in large quantities, with Nvidia falling more than 14% before the market opened, ARM falling more than 13%, and Tesla falling more than 12%.

After the opening, the market situation improved. Nvidia's decline narrowed to 6.36%, Tesla's decline narrowed to 4.23%; Amazon and Google fell more than 4%, Meta and Microsoft fell more than 2%. As of the close, the Dow Jones narrowed its decline to 2.6%; the S&P 500 fell 3%; and the Nasdaq fell 3.43%.

On the news front, first, U.S. job growth slowed more than expected in July, and the unemployment rate unexpectedly rose, amplifying the market's panic that the U.S. economy is about to fall into recession; second, Buffett's second-quarter report showed a larger-than-expected reduction in Apple holdings, from $174.3 billion at the end of the first quarter to $84.2 billion.

Against this backdrop, market expectations for the Fed's rate cuts have risen rapidly. According to CME's Fed Watch tool, the probability of a 50 basis point rate cut by the Fed in September is now over 97.5%, and the market has fully priced in the possibility of a 50 basis point rate cut in September.

On the institutional side, Goldman Sachs has increased its expectation of the Fed cutting interest rates by 25 basis points to three times this year, and does not rule out a 50 basis point cut in September; JPMorgan Chase expects the Fed to cut interest rates by 50 basis points in September and November, and 25 basis points at each meeting thereafter; Citigroup expects the Fed to cut interest rates by 50, 50 and 25 basis points in September, November and December, respectively.

Claudia Sahm, a former Federal Reserve economist, said that while the U.S. is not yet in recession, it is “uncomfortably close.” She expects Fed policymakers may recalibrate their approach to take into account the growing risks.

According to the latest news, Goldman Sachs raised the probability of the United States falling into recession in the next year from 15% to 25%.

Safe-haven assets such as gold plunged

However, it is somewhat unusual that while the US stock market fell sharply, the prices of safe-haven assets such as precious metals also fell sharply, showing a deep V trend. London gold fell nearly 3.2% during the intraday trading, and the spot silver fell by more than 7%.

Regarding the trend of gold, Samy Chaar, chief analyst at Lombard Odier, believes that the main concern of the market at present is the risk of recession, followed by geopolitical tensions. He pointed out that the economic situation in the United States is still acceptable, and layoffs and job cuts have not increased significantly. For the gold market, he believes that the recent risk aversion sentiment will continue to support gold prices.

George Boubouras, head of research at K2 Asset Management, pointed out that the market is concerned about the recent weakening of economic data, but inferred that last Friday's employment data may have overreacted. He believes that the Fed's interest rate cut expectations will increase market volatility before the election, and gold as a safe-haven asset will benefit in this environment.

Guotai Junan Securities believes that the starting point of the main upward trend of gold stocks is the Federal Reserve's relaxation of monetary policy tools other than the benchmark interest rate, and the increased probability of market expectations for interest rate cuts cannot replace the effect of actual marginal easing. Therefore, gold prices show wide fluctuations as expectations change.

Gold stocks are expected to release performance

Since the beginning of this year, resource stocks in the upstream of gold have shown good growth, with China Gold soaring 59.23%, Hunan Gold rising 43.81%, Chifeng Gold, Shandong Gold and Zijin Mining rising 36.08%, 30.28% and 26.87% respectively; downstream companies have been constrained by rising costs, and their share prices have fallen again and again. The share prices of jewelry companies such as Chow Tai Seng, Cuihua Jewelry, Lao Feng Xiang, Ming Pai Jewelry, Mancaron and Chao Hongji have all fallen by more than 20%.

Gold mining stocks generally expect to see an increase in their first-half performance. Among the listed companies that have released forecasts, Chifeng Gold, Sichuan Gold, Shandong Gold and Hunan Gold have the highest year-on-year growth in net profit, at 130.8%, 56.54%, 53.44% and 50% respectively; Hunan Silver and Western Gold have turned losses into profits.

Chifeng Gold expects to achieve a net profit attributable to shareholders of RMB 700 million to RMB 740 million in the first half of the year, a year-on-year increase of 124.39% to 137.21%. The main reasons are that the gold production and sales price during the reporting period increased compared with the same period last year; and the transfer of purchase tickets held by the wholly-owned subsidiary had an impact on the profit and loss of this period equivalent to approximately RMB 78.4393 million.

In terms of net profit scale, Zijin Mining ranks first. The company expects to achieve a net profit attributable to the parent company of 14.55 billion yuan to 15.45 billion yuan, a year-on-year increase of 41% to 50%. During the reporting period, the output of the company's main mineral products increased year-on-year, with the output of mineral gold, mineral copper, and mineral silver increasing by 9.6%, 5.3%, and 1.3% year-on-year respectively, and the sales price increased year-on-year.

Subsequently, the net profits of Shandong Gold, Chifeng Gold, Hunan Gold and Sichuan Gold exceeded 100 million yuan, namely 1.35 billion yuan, 720 million yuan, 419 million yuan and 145 million yuan respectively.

Looking ahead. Guojin Securities said that with less than two months until the September interest rate meeting and the Jackson Hole meeting in late August, it is necessary to continue to pay attention to the Fed's other monetary policy tools or balance sheet adjustments. At present, gold stocks are in stagflation relative to gold prices, mainly because the market is worried about the deep correction of gold prices and the problem of performance realization. With limited cost increases this year, the performance of gold stocks will be well released.

Statement: All information content of Databao does not constitute investment advice. The stock market is risky and investment should be cautious.

Editor: Xie Yilan

Proofreading: Ran Yanqing

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