CSC Securities: Risky asset prices are volatile, seeking opportunities in logical sectors amidst the crisis

According to the latest report from CSC Securities, both US manufacturing and non-farm data fell short of expectations, intensifying market concerns about a US economic recession and putting pressure on risk assets. The Bank of Japan's interest rate hike and balance sheet reduction have created dual pressures on trades borrowing yen to invest in the stock market, with risks of negative feedback. If liquidity risks arise, there is a high probability that it will force the Federal Reserve to respond with easing measures, directly benefiting gold, which is sensitive to interest rates and currency. Additionally, basic industrial metals such as copper, aluminum, and tin have maintained their supply rigidity logic, with consumption growth support in a structural economic context. Despite macroeconomic sentiment shocks, prices have shown resilience and are worth monitoring.

Industrial Metals: This week, LME copper, aluminum, lead, zinc, and tin prices changed by 0.2%, -0.8%, -2.0%, -0.04%, and 2.1% respectively. Industrial metal prices are jointly determined by their "financial attributes" and "commodity attributes". From a financial perspective, on July 31st, the Federal Reserve announced that it would maintain the federal funds rate target range at 5.25% to 5.5%, in line with market expectations, indicating a possible rate cut cycle. From a commodity perspective, global copper and aluminum inventories are relatively low, with expectations of demand growth due to the expected economic recovery in China and the pull from the new energy industry.

Concerns about US Economic Recession:

(1) Weak US data intensifies recession concerns. The US July ISM Manufacturing PMI was 46.8, the lowest since November 2023, below the expected 48.8 and the previous value of 48.5. The US non-farm employment in July dropped significantly from the previous 179,000 to 114,000, below the expected 175,000, with the unemployment rate rising to 4.3%, the highest in three years. This triggered the economic recession indicator - the Sam rule, where the 3-month average unemployment rate is 0.5 percentage points higher than the 12-month low. Weak economic data has intensified market concerns about a US recession, leading to a decrease in risk assets and US bond yields due to safe-haven demand. Although a slowdown in economic growth does not equate to a recession, dominant risk aversion can lead to a spiral negative feedback of asset price declines and recession concerns, potentially forcing the Federal Reserve to cut rates beyond expectations, entering a new round of monetary easing.

(2) Asset prices experience significant volatility, seeking opportunities in strong logic sectors. Global stock markets have plummeted significantly, highlighting asset-side pressures. Meanwhile, the Bank of Japan raised interest rates to 0.25% and plans to reduce its balance sheet, leading to a sharp appreciation of the yen against the dollar. Trades borrowing yen to invest in the stock market face dual pressures from the asset side and the liability side, with operations of selling assets to repay yen potentially exacerbating asset-side pressures, even triggering risks of selling gold to cover margins. This scenario depicts a situation where gold falls indiscriminately in extreme economic worries. If liquidity risks arise, there is a high probability that it will force the Federal Reserve to respond with easing measures, directly benefiting gold, which is sensitive to interest rates and currency. It is recommended to buy and hold during volatility. Additionally, basic industrial metals such as copper, aluminum, and tin have maintained their supply rigidity logic, with consumption growth support in a structural economic context. Despite macroeconomic sentiment shocks, prices have shown resilience and are also worth monitoring