CSC: Non-farm data strengthens interest rate cut expectations, the bull market for non-ferrous metals continues

According to the Zhitong Finance APP, CITIC Construction Investment released a research report stating that the most critical data before the Federal Reserve's interest rate meeting is the U.S. non-farm employment data, which performed significantly below expectations. The interest rate meeting on September 16-17 is expected to announce a rate cut with little doubt, and the probability of three rate cuts within the year is close to 80%. The U.S. dollar index has weakened significantly, stimulating the monetary attributes of gold and the financial attributes of copper. Gold prices continue to reach new highs, opening up upward space for equity targets. On one hand, low interest rates stimulate prices; on the other hand, the strategic position of metals enhances valuations. All sub-sectors of non-ferrous metals are flourishing, with price-driven EPS and improved sentiment, as well as strategic positioning enhancing PE, suggesting active participation.

The main points of CITIC Construction Investment are as follows:

Industry Dynamics Information

Industrial Metals: This week, the price changes for LME copper, aluminum, lead, zinc, and tin were -0.05%, -0.6%, -0.3%, 1.5%, and -2.0%, respectively. The prices of industrial metals are determined by both "financial attributes" and "commodity attributes." From a financial perspective, the Federal Reserve has entered a rate-cutting cycle; from a commodity perspective, global copper and aluminum inventories are at relatively low levels, and China's economic recovery is expected. Coupled with the pull from the new energy industry, the demand for copper and aluminum is expected to improve.

Non-farm data strengthens rate cut expectations, non-ferrous bull market continues

Gold: August non-farm data sets the tone for September rate cuts, gold prices continue to reach historical highs

In August, the U.S. added 22,000 non-farm jobs, lower than the expected 75,000 and the previous value of 79,000, with the data for the previous two months revised down by 21,000. The unemployment rate is 4.3%, slightly higher than the previous value of 4.2%, the highest since November 2021. After the non-farm data was released, the implied probability of a rate cut in September remained at 100%, with the expected number of rate cuts for the year rising from 2.4 to 2.8 times, indicating about an 80% probability of consecutive rate cuts in September, October, and December. The strengthening of rate cut expectations has led to a decline in the U.S. dollar index, further stimulating the monetary attributes of gold, with gold prices continuously reaching historical highs, opening up space towards $4,000. The main targets in the gold sector are generally priced at around 20 times PE for a gold price of $3,300, and as the upward space for gold prices opens, gold targets also gain upward elasticity.

Copper: Repeated attempts to break through the 80,000 mark

Short-term consumption is gradually leaving the off-season, with global exchange inventories at 620,000 tons, but distributed unevenly. COMEX copper inventories continue to increase to 300,000 tons, while non-U.S. inventories are at a relatively low level, indicating a healthy copper fundamental. As a dollar-denominated variety with dominant financial attributes, the Federal Reserve's rate cuts are expected to help copper prices cross the 80,000 mark. From a long-term perspective, the green energy transition, electrification, and artificial intelligence are boosting copper demand, but copper supply faces challenges from insufficient investment and disruptions in existing copper mine production, highlighting its scarce resource attributes. The scarcity of copper mine resources, combined with the momentum provided by rate cuts, suggests that the valuation of equity targets is low, and investment returns in equity targets are promising, recommending continued allocation. Currently, the copper sector targets are priced at an average of 78,000 in Q2, corresponding to about 13 times PE, which shows significant room for improvement compared to the previous 15-20 times PE. As it stands above 80,000, the double impact of EPS and PE will drive considerable space for copper equity targets Aluminum: Weakening Alumina, Expanding Electrolytic Aluminum Profits

The latest inventory of the domestic electrolytic aluminum market is 628,000 tons, an increase of 6,000 tons month-on-month. The downstream sector is gradually emerging from the off-season, and the inventory inflection point is approaching, with inventory levels at historical lows for the same period. In the second half of the year, the growth rate of electrolytic aluminum consumption is slowing, but the growth rate of supply is also declining, maintaining a tight balance between supply and demand, allowing industry profits to remain high. The operating rate of alumina has increased, inventory continues to rise, and spot prices have weakened to 3,162 yuan/ton. The latest profit for the electrolytic aluminum industry is a self-supplied electricity profit of 5,320 yuan/ton (including tax) and a grid electricity profit of 3,860 yuan/ton (including tax). Domestic electrolytic aluminum production capacity is nearing its ceiling, while new overseas supply will take time. In recent years, the dividend capacity and willingness of electrolytic aluminum companies have both increased, strengthening the dividend attributes of this sector. It is recommended to focus on high-dividend strategies for allocation