Zheshang Securities: The implementation of the Federal Reserve's interest rate hike boosts liquidity expectations and is optimistic about gold allocation opportunities

The Zhitong Finance App learned that Zhishang Securities released a research report saying that the Federal Reserve's early interest rate hike is expected to block the transmission of inflation from energy downstream, thereby helping the market to lower expectations of future inflation, and forward interest rate expectations are expected to gradually stabilize. The bank believes that the threshold for continuing to raise interest rates in the future will be significantly raised, and the market's expectations for the rate hike path after September may be gradually lowered. This will correspond to a significant improvement in long-term liquidity expectations, and this is expected to directly support the trend of gold. If the Federal Reserve's interest rate hike is implemented in September, it is expected to drive a marginal improvement in forward liquidity expectations, the equity style may grow again, and at the same time be optimistic about gold allocation opportunities.

The main views of Zheshang Securities are as follows:

How to understand the impact of the expected interest rate hike in September on the future market?

The interest rate hike in September may drive inflation expectations to peak. In August, the US core CPI increased 0.3% month-on-month, exceeding market expectations. After the data was released, the probability that the Fed will raise interest rates in September has risen to about 90%, and the rate hike in September has almost been fully priced. However, if the interest rate hike finally comes to fruition in September, it may actually boost market sentiment: although the CPI data slightly exceeds expectations, it is mainly affected by the energy segment. The rise in gasoline prices contributed more than 1/3 of the CPI reading upward, and the spread effect of inflation is not significant. Viewed from the perspective of truncated average and median, the stickiness of inflation will decline. Therefore, early interest rate hikes are expected to block the transmission of inflation from energy downstream, thereby helping the market to lower expectations of future inflation, and forward interest rate expectations are expected to gradually stabilize.

Why is the strong gold market expected to start?

The bank determined that after raising interest rates before September, the market's expectations for inflation are expected to gradually stabilize. After that, the core contradiction in monetary policy may shift from inflation to the economy. However, at present, although the total volume of the US economy is still not weak, there is a very obvious K-type differentiation. The manufacturing boom is still strong with AI investment, but traditional economies such as real estate and consumption are clearly weak. The latest values of existing home sales and personal consumption expenditure are at 5% and 30% levels since 2000, respectively. Under the continuous suppression of high interest rates, the traditional economy is close to recession. Furthermore, the rise in interest rates is counterproductive. The 10-year US bond interest rate has had a lag of about 3 months. Interest rates on US bonds have continued to rise in the current round since March. The bank also saw that US economic data began to weaken marginally in June. Inferring from the indicator trend, the US economic data will probably continue to decline until the end of the year. Therefore, the bank believes that the threshold for continuing to raise interest rates in the future will be significantly raised, and the market's expectations for the rate hike path after September may be gradually lowered. This will correspond to a significant improvement in forward liquidity expectations, and this is expected to directly support the gold trend.

Why is the market pace expected to shift to growth again in the future?

Since mid-August, market hot spots have been rotating rapidly, but from a stylistic perspective, there is a common factor behind this, namely the strengthening of the undervaluation style. From August 18 to September 11, Shenwan's high price-earnings ratio and low price-earnings ratio indices increased by -9.96% and +2.69% respectively. This corresponds to the fact that the market continues to explore low-level sectors against the backdrop of weak risk appetite. However, the strength of the undervaluation style is likely to be close to its extreme value. If you look at the 20-day surplus earnings of Shenwan's undervaluation index, as of September 11, this indicator has reached the 88.4% ranking since 2020, and the probability of subsequent reversals has increased markedly, that is, the overvalued growth style is expected to outperform again. This is also quite consistent with the bank's judgment on the macro-level pace. After the market absorbs the negative impact of the September interest rate hike, the price inflation trend may gradually begin to be controlled. At this point, it will also respond to the recovery in risk appetite and the strengthening of the growth style.

Risk Alerts

1. The conclusions of this report are drawn from a quantitative model. The model is based on statistical summarization of historical data, and the conclusion is that there is a risk of future failure; 2. There is a risk of measurement deviation, and changes in the market environment may cause the measured data to deviate from the actual data; 3. The risk of large fluctuations in gold still exists, and investors need to make careful decisions.