According to a research note from China Securities Co., Ltd. (601066), the probability of a Fed rate hike in October first rose and then fell, giving risk assets some breathing room, but turbulence in the AI market has weakened expectations for future economic growth, leaving assets without upward drivers.
Nonferrous equity valuations for gold, copper, and aluminum are all at low levels, and their defensive qualities are attracting capital inflows. Gold prices have stabilized, with gold stocks standing out. Base industrial metals are supported by supply disruptions and low inventories, but macroeconomic expectations remain weak, and bullish conviction is not strong, so both equity targets and prices are expected to move sideways.
The main views of China Securities Co., Ltd. (601066) are as follows.
Sector news and information
Industrial metals: This week, LME copper, aluminum, lead, zinc, and tin prices changed by -1.3%, -1.6%, -0.03%, -3.1%, and -5.3%, respectively. Industrial metal prices are determined jointly by financial attributes and commodity attributes. From the financial side, the Fed's rate hike landed as expected. From the commodity side, global copper and aluminum inventories are at relatively low levels, China's economic recovery is expected, and demand growth for copper and aluminum should improve with the boost from the new energy industry.
Gold: The probability of an October rate hike declined, and gold prices rebounded after probing lows. U.S. September consumer price index rose 0.6% month on month and 3.7% year on year, both higher than August's 0.4% and 3.4%. The September core indicator rose 2.6%, also above market expectations. The data pushed up the dollar index and the 10-year U.S. Treasury yield, briefly pressuring gold prices back to the $4,100 mark. However, Warsh made clear in a speech in Bangkok that he would not pre-judge the outcome of the policy meeting, prompting traders to lower the probability of an October rate hike. In addition, concerns over high AI financing costs and profit realization drove some funds into the gold market for safety, pushing gold prices back up. In the long run, high debt levels among major economies, excessive dollar money supply, and fiscal support consistently above historical averages, such as the U.S. federal budget deficit rising to $1.99 trillion in fiscal 2026 from $1.78 trillion in fiscal 2025, the highest since the pandemic, are driving up the scale of federal debt. Worries over dollar credit support a shift higher in the center of gold prices.
Copper: Macro expectations weakened, and copper prices fluctuated at highs. This week, domestic refined copper social inventories accumulated to 113,100 tons. After the contract roll, spot premiums were 700 to 900 yuan, and spot market supply remained tight. The latest copper concentrate TC fell to a record low of negative $238 per dry ton, by-product sulfuric acid profit contribution tightened, and pressure on the smelting segment continued to rise. From October to November, several domestic copper smelters will undergo planned maintenance, and electrolytic copper output faces downward pressure. Although commodity attributes are very strong, global AI stock performance has been volatile, growth expectations have weakened, and copper prices are fluctuating at highs. Recently, industry participants have loosened their long-term copper price expectations, believing that the current period is when copper fundamentals are tightest, including low non-U.S. inventories caused by U.S. copper tariffs, China's declining scrap copper volumes, and the AI consumption narrative, which has led to reduced willingness to go long, leaving copper prices range-bound at highs.
Aluminum: Oversupply expectations have formed, and far-month aluminum prices are suppressed. This week, domestic electrolytic aluminum spot inventories fell by 50,000 tons to 636,000 tons. The rapid destocking pulled up far-month aluminum prices by affecting near-month prices. Before that, commodity market investors had aggressively shorted far-month contracts based on expectations that the global aluminum market would turn into surplus next year, creating a large backwardation structure in Shanghai aluminum. Although the global aluminum market is highly likely to shift to oversupply next year under the dual impact of overseas commissioning and Middle East restarts, this is a slow variable that will be realized gradually. The current reality is that both LME and domestic spot inventories are at low levels, effectively resisting short-selling forces based on long-term oversupply, with aluminum prices supported at 23,000. On the equity side, current pricing of long-term aluminum prices is sufficiently pessimistic. For companies with high dividends at an aluminum price of 20,000, dividend yields are already 6%. Given that aluminum prices are unlikely to fall quickly, investors chasing dividends may consider positioning at the right time.
Risk analysis
1. A sharp global economic recession and a cliff-like contraction in consumption. 2. Runaway U.S. inflation, a more aggressive-than-expected Fed tightening, and a strong dollar suppressing equity asset prices. 3. China's new energy sector consumption growth falling short of expectations, and real estate sector consumption remaining sluggish.
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