The Fed raised interest rates in June, the second time this year, the US economy continued to grow, and the job market performed strongly. Although wage growth in May is still unsatisfactory and inflation has fallen, Fed officials seem to be inclined to stick to their plans. The Fed also announced that it will begin to reduce the size of its public debt and other securities from this year. In fact, compared to raising interest rates, the Fed's contract will directly reduce the dollar flowing in the market. If the base currency of 2.5 trillion US dollars is reduced in just a few years, plus the multiplier effect, this "dollar reduction" will undoubtedly lead to huge turmoil in the financial market. We tend to; the Fed does not value the performance of economic data on the issue of contraction. Even if the weak economic data in the future delays further interest rate hikes, the Fed may continue to shrink. In short, the United States is completely bidding farewell to easing. In addition, the central banks in Europe and Japan have successively reported that they may end the easing. If the European and Japanese central banks gradually recover liquidity, this will also have a major impact on the global financial market. Given that the Fed’s specific plan is ahead of market expectations, whether the Fed will begin to reduce its balance sheet at its policy meeting in September this year deserves special attention.
According to the latest data released by the People's Bank of China, China's M2 growth rate in May was 9.6%. This is the historical mark that the M2 growth rate has fallen below 10% for the first time since statistics were published in 1986. The slowdown in M2 growth is mainly due to the financial system's reduction of internal leverage, which is no doubt that the money has tightened compared to the previous two-digit growth. In the next two years, under the suppression of the Fed's tightening monetary policy, China's monetary policy will continue to be stable and tight. This is a negative for China's real estate and stock market. However, real estate transactions have been basically frozen. We believe that the central bank's de-leverage is to make the money in the market less and more expensive, to control the flow of funds to places where the risk is too high, to prevent systemic risks. Although management has introduced a series of strong policies, it shows that the responsibility of the decision-making level exceeds market expectations. However, many pessimists in the market still doubt that even if the decision-making layer wants to make these changes, and faces the current tight market currency, the obstruction of too many interest groups, and the rising production capacity and output, the clearing of the surplus industry is even more difficult. At present, both China and the United States hope to avoid a sharp appreciation of the US dollar against the renminbi. This constitutes the basis for the coordination and cooperation of exchange rate policies between the two sides. For a long time, China's basic system is not perfect, especially the stock market is only for financing services. Failure to put the interests of investors in the most important position is the biggest failure. In the fall of this year, the "Nineteenth National Congress" meeting on China's future political and economic trends, reform and compromise will be an important turning point in China's political and economic history. We have no doubt that before the 19th National Congress, all "stable words" take the lead. Preventing financial and debt from systemic risks is the core task of the government. In particular, China's capital is strictly controlled and externally appreciated, and the internal depreciation pattern is more obvious. This has made domestic inflation factors support the formation of basic metals. In the off-season consumption in the third quarter, the probability of oscillation in the basic metal range is still large.
At present, the domestic alumina spot market transaction is light, and the alumina enterprise inventory and electrolytic aluminum raw material inventory are at a low level. From the transaction situation, most of the contracts are long-term contracts. The comprehensive cost of alumina is basically around 2,320 yuan / ton. Due to the high operating rate of electrolytic aluminum and the rebound in alumina prices, the alumina operating rate increased. The alumina output in May was 5.745 million tons, which remained at a high level. However, due to environmental factors and the expected reduction in electrolytic aluminum production, alumina prices have always been suppressed in this area, and the upper space will also be limited. The current alumina price operation range is 2500-2700 yuan / ton, and the mainstream transaction price is about 2620 yuan / ton. We believe that with the passage of time, especially the gradual approach of the 19th National Congress, environmental protection and electrolytic aluminum production are expected to increase, domestic alumina prices will be affected by these negative effects, and the selling pressure above the price will gradually increase. In short, we are still cautiously empty-minded about the short-term trend of alumina. It is expected that the domestic alumina price trend in July will be a weak range.
At present, the supply-side reform of the aluminum market is still facing uncertainty. The actual production reduction is far from the theoretical reduction of production scale. The short-term huge inventory and tight liquidity still bring pressure to the aluminum market. Recently, the "soft constraints" suddenly proposed by President Ogawa should cause us to pay attention to the reform trend of decision-making. This shows that the management has a high degree of vigilance against the central government's finances for local governments and enterprises with high debt risk. This also highlights the strong confidence of the central government in the future after the 19th National Congress on the belief in reform, and may also imply that we should have a new understanding of capacity and de-leverage. We believe that the domestic aluminum market is the policy city in the end, Weiqiao's production of 250,000 tons will not end, perhaps just started. Baichuan data shows that the current domestic electrolytic aluminum cost is 13,200 yuan / ton, and the monthly output reaches 3.182 million tons. Production has hit record highs, showing that the game between the local and the central is still in progress. The third quarter will be the period of publicity of illegal production capacity in various regions, and the market will pay more attention to it. At the same time, the publicity and implementation of illegal production capacity in Xinjiang will still plague the market. In the long run, there are no shortcuts to reform. It is risky to try to reduce leverage through the use of leverage by residents. Only through structural state-owned enterprise reform is the main way to solve problems. The recent reduction in alumina production has pushed up the cost of primary aluminum production. To take care of themselves, China has asked 28 cities to cut aluminum production during the winter heating period, while China's aluminum production accounts for more than 55% of global production. Environmental pressures and expectations that some electrolytic aluminum will cut production will weaken the selling pressure of the empty side. From the actual situation of the market, the domestic aluminum stocks rebounded less in the off-season, especially the number of large trucks on the road showed a significant increase, which may indicate that consumption and intensity exceeded people's expectations. We believe that; with the gradual approach of the 19th National Congress, all "stable words" take the lead, and it is the core task of the government to prevent financial risks and debts from appearing systematic risks. Under the interaction of de-capacity, environmental protection pressure and real domestic inflation expectations (profit), as well as the corresponding real estate control cycle and liquidity tightening (bad interest), the domestic aluminum market will still show a range of fluctuations.
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