In the current global easing cycle, correlations between various asset classes have increased, and the change in the new Federal Reserve Chair is expected to reshape the global monetary policy path and market space. In the short term, accommodative trading continues, benefiting equity and metal markets. The firm believes that: 1) Regardless of which candidate takes office, the Fed's monetary policy is likely to remain accommodative in the short term, with a weaker US dollar being probable, though attention must be paid to the potential intensity and transmission of balance sheet reduction policies. 2) For precious metals, a weaker dollar and declining real interest rates will support demand for gold's monetary and financial attributes; furthermore, if Hassett is elected, it could spark concerns about policy stability, with this third potential tailwind possibly driving safe-haven assets like gold and other precious metals even higher. 3) In an environment of accommodative trading, the overall outlook is positive for global equity markets. For China's equity market, with accelerating economic transformation, declining risk-free returns, and capital market reforms, the upward trend of the "transformation bull" market is far from over.
Correlations within global capital markets have significantly increased. Since the Fed initiated its rate-cutting cycle in September 2024, major economies like China and Europe have moved in sync, forming a global landscape of ample liquidity. The firm posits that the essence of this phenomenon is global debt globalization, with the core logic being the gradual reduction of funding costs through debt substitution, thereby alleviating the pressure of interest payments on government debt. For global markets, this manifests as: 1) Synchronized strength in equity markets, with developed market indices like the Nasdaq 100 and Nikkei 225 leading gains, while emerging market indices such as the Shanghai Composite and the Ho Chi Minh Index also showing impressive performance, and the inflection points in their upward trajectories appearing almost simultaneously; 2) Synchronized price increases for both precious and industrial metals, where financial demand attributes are expanding ahead of physical demand attributes. Commodity markets and equity markets show strong correlation, with the pricing of accommodative trading being the core driver.
Federal Reserve decision-making has gradually become more transparent and predictable, with its operational mechanisms iterating and optimizing. Over the past 40 years, successive Fed chairs have promoted reforms, primarily including: 1) A shift from secretive formulation to public decision-making, emphasizing thorough communication with markets before announcing interest rate policies. Starting with Greenspan, the Fed's interest rate policy decisions began trending towards openness and transparency; subsequent chairs further facilitated the market's digestion of interest rate policies through various methods. 2) A transition from experience-driven to data-driven decisions. Beginning with Greenspan, the FOMC established extensive economic databases to support the Fed's interest rate decisions. 3) Continuous emphasis on managing market expectations. Greenspan promoted FOMC decision transparency, Bernanke established the mechanism for publishing interest rate projections after FOMC meetings, Yellen created the dot plot mechanism for signaling rate cuts; the Fed's methods and tools for communicating its interest rate policy signals to the market have become increasingly sophisticated.
Behind the four candidates lies the core demand of the Trump administration, which involves intervening in the Fed's economic decision-making. The latest candidates for Fed Chair are Rik Reed, Kevin Warsh, Christopher Waller, and Kevin Hassett, with Reed and Warsh considered front-runners. The firm believes that: 1) The four candidates currently lean dovish in the short term, making a continuation of the global accommodative and high-liquidity environment highly probable during the initial period of the new chair's term; 2) Leading candidate Warsh holds an advantage due to his prior Fed experience and market trustworthiness, while Reed garners significant attention for his industry independence and clear interest rate targets; 3) The Trump administration exhibits a tendency to intervene in Fed decisions across multiple dimensions, which could impact policy independence, warranting close attention to the candidates' degree of association with the White House.
In the short term, accommodative trading continues, benefiting equity and metal markets. The firm believes that: 1) Regardless of which candidate takes office, the Fed's monetary policy is likely to remain accommodative in the short term, with a weaker US dollar being probable, though attention must be paid to the potential intensity and transmission of balance sheet reduction policies. 2) For precious metals, a weaker dollar and declining real interest rates will support demand for gold's monetary and financial attributes; furthermore, if Hassett is elected, it could spark concerns about policy stability, with this third potential tailwind possibly driving safe-haven assets like gold and other precious metals even higher. 3) In an environment of accommodative trading, the overall outlook is positive for global equity markets. For China's equity market, with accelerating economic transformation, declining risk-free returns, and capital market reforms, the upward trend of the "transformation bull" market is far from over.
Risk warnings include overseas economic recession exceeding expectations and global geopolitical uncertainty.
Comments