Equity Indices: A-shares continued their upward trajectory with increased volume yesterday. The Wind All-A index rose 1.59%, with a turnover of 2.83 trillion yuan. The CSI 1000 Index gained 1.43%, the CSI 500 Index climbed 2.13%, the CSI 300 Index advanced 1.55%, and the SSE 50 Index increased by 1.9%. Influenced by Venezuelan geopolitics, non-ferrous metals led the gains, followed by non-bank financials. Market sentiment remained buoyant; statistics show broad-based ETFs saw net subscriptions of 110 billion yuan in December, with nearly 102 billion yuan flowing into A500 ETFs. The A500 index has long exhibited a high correlation with the CSI 300, with a coefficient exceeding 0.98. The subtle difference lies in the A500 index having slightly more growth-oriented constituents, such as those in the power equipment and electronics sectors. While A500 ETFs experienced substantial subscriptions, we note a significant recent increase in the net short positions of IF contracts held by the top 5 member units, suggesting a potential hedging relationship. Consequently, related funds may not see a massive net outflow simply because the year has turned. In the short term, equity indices are expected to continue fluctuating within the oscillation range established since October. Taking the CSI 1000 as an example, its cumulative year-on-year revenue growth for the third quarter was around 2.6%, providing solid support for its current valuation and reducing liquidity risk. On the other hand, a significant spring rally requires specific conditions: for small-cap indices, it necessitates marginally looser liquidity policies; for large-caps, it requires a sustained improvement in inflation expectations. As these conditions are not currently prominent, the spring rally may be less vigorous than in previous years.
Government Bonds: At Tuesday's close, the 30-year benchmark contract fell 0.31%, the 10-year contract declined 0.13%, the 5-year contract dropped 0.11%, and the 2-year contract decreased by 0.05%. The People's Bank of China conducted a 7-day reverse repo operation of 16.2 billion yuan on January 6th, with the winning bid rate unchanged at 1.4%. According to Qeubee statistics, with 312.5 billion yuan in 7-day reverse repos maturing in the open market, this resulted in a net withdrawal of 296.3 billion yuan. From a liquidity perspective, DR001 edged up 0.1 basis points to 1.26%, while DR007 also rose 0.1 basis points to 1.43%. In the near term, reasonably ample liquidity remains the primary support for the bond market. However, factors such as a stabilizing economy, rebounding inflation, and a cautious approach to interest rate cuts pose certain constraints. With mixed bullish and bearish factors, a significant upward breakout in yields would require a marked rebound in inflation, while a downward breakout would need guidance from rate cuts. The bond market is expected to remain range-bound in the short term.
Precious Metals: London spot precious metals fluctuated higher overnight, with silver, platinum, and palladium remaining particularly active. The gold-silver ratio fell to 54.4, while the platinum-palladium spread widened to around $620 per ounce. Divergence persists within the Federal Reserve regarding the future path of rate cuts. Richmond Fed President Barkin stated that rates have reached a neutral level, while Governor Milan suggested that data supports further cuts, potentially exceeding 100 basis points this year. Geopolitically, following the US-Venezuela conflict, the Trump administration is reportedly discussing options, including military ones, regarding Greenland. Whether the Fed will cut rates in January remains uncertain, while geopolitics has undoubtedly become a key focus in the first month of the year, likely supporting gold prices to maintain a strong, albeit volatile, trend. For other precious metals, silver, platinum, and palladium are showing upward elasticity against the backdrop of gold's steady ascent. Sound fundamentals and expectations of a reversion in relative valuations remain the primary drivers, reflecting the overall bullish market sentiment. A cautiously optimistic view is warranted, with attention on the performance of silver and platinum near their previous all-time highs, which act as resistance levels.
