Driven by the global central bank gold rush, global gold prices surged 20 per cent between mid-February and mid-April, culminating in May when the spot price of gold hit a record high of $2,450.13. But since then, one by one more than expected US economic data led to the gold price began to range volatility, high gold prices also led to the central bank in May to buy gold rhythm suspended. Throughout June, gold traded in a tight range, with a high just above $2,387 and a low just below $2,287.

As of 18:40 Beijing time on July 4, the international gold spot price was at $2359 / ounce, and there were signs of a return to the rally in the near future.

Guarding the gold may be guarding the wallet. “We are still bullish on gold in the long term, mainly after the consolidation in the past few months, we think central banks will continue to add weight, and with the geopolitical situation still relatively high risks, we think gold can reach $2,450 in the next 12 months,” Wang Jie, chief investment strategist at Standard Chartered China Wealth Management, told CBN.

A temporary cooling of the “gold rush” hit gold prices

Since the beginning of this year, the central bank’s “gold rush” has driven the enthusiasm of global investors to buy gold, after all, the central bank’s buying volume is an irresistible bull force.

FawadRazaqzada, senior analyst at Gain Group, previously told reporters that in the case of gold, one of the reasons for the sharp rise in prices in recent months has been large-scale purchases by the Chinese central bank. In May, however, the People’s Bank of China ended an 18-month buying spree. But in his view, as long as the central bank does not sell reserves, the impact on gold prices will not be too large, gold is still favored by investors.

Data from June 7 showed that in May, the People’s Bank of China ended an 18-month streak of increasing its gold holdings since November 2022. The price of gold fell more than $67 an ounce that day, at one point falling to $2,307, a drop of nearly 3%. By Monday (June 10), the spot price of gold had fallen below $2,300 an ounce, showing the influence of central banks.

Indeed, the world’s central mothers have been the most powerful buyers of cash over the past year. China’s central bank in April gold reserves increased by 60,000 ounces month on month, achieving “18 consecutive increases”. According to the World Gold Council, global central bank net gold purchases reached 290 tonnes in the first quarter of 2024, a record quarterly high, led by Turkey, China and India.

Some industry insiders told reporters that this does not mean that the central bank’s gold buying trend has reversed, but it may be that in the context of high gold prices, the central bank has slowed down the pace of gold purchases, but the trend of diversified allocation is clearly accelerating, especially among emerging market central banks.

It is expected that in the future, emerging markets will still become a more important force to buy gold. Wang Lixin, CEO of the World Gold Council China, recently told the First financial reporter that European and American countries developed earlier, and the allocation of gold was also earlier, while the development of emerging economies in the early years has just started, and they need to retain foreign exchange to meet foreign trade needs. As these countries become richer and there is a stronger global need for diversification, gold will naturally be added to the holdings of emerging market central banks.

In addition to the central bank, in fact, more sovereign institutions and other “big funds” have fully recognized the role of gold in investment portfolios in recent years.

In addition to the central bank’s “purchasing power”, most investment institutions still believe that gold prices will have the potential to rise, the US interest rate cut “late but come” expectations, years of high inflation has weakened the value of fiat currencies, and the strong appeal for diversification are all reasons to support gold prices, currently UBS and other international investment banks have given a target price of $2,500 per ounce, Goldman Sachs is $2,700.

JuanCarlosArtigas, head of research at the World Gold Council, previously said in an interview with First Finance that in general, four major factors drive gold prices – the level of economic expansion, risk and uncertainty, opportunity cost (interest rates) and market momentum.

In terms of short-term opportunity cost, the turning point for interest rate hikes has historically been when gold prices have taken off. Ankay believes that for gold, a non-interest-bearing asset, interest rate cuts mean that the opportunity cost of holding gold for investors will be reduced, and vice versa.

“Given that gold has held up despite the recent strength of the dollar, it is reasonable to expect that gold could make new highs if the dollar weakens from here.” Therefore, the upcoming data will need to be closely watched. Any further signs of weakness in the U.S. economy could increase market expectations for multiple rate cuts in 2024 and could dent the dollar’s gains, especially against commodity currencies.” Lazarzada told reporters.

The US non-farm payrolls data for June, due to be released on Friday evening, will be in focus. The May data unexpectedly exceeded expectations (by nearly 100,000), which also caused interest rate cut expectations to plummet, hitting gold and risk assets. This time, the market is expected to add 180,000 jobs, compared with the previous 272,000, the unemployment rate is expected to remain at 4%, and hourly earnings growth is expected to slow to 3.9% from 4.1%.

The agency believes that the better-than-expected employment data will consolidate the Federal Reserve’s outlook of “one rate cut a year”, which will be positive for the dollar. On the contrary, if the data is weak, it will stimulate interest rate cut expectations and positive trends in gold and US stocks.

Several traders also told reporters that gold has been in a consolidation pattern recently, but recent moves point to a potential breakout. The bears will need to apply significant pressure to turn the trend in their favor. “Now that gold has broken through short-term resistance at $2,325, the next goal is to break through the next key resistance at $2,365. A break above this level would be a strong indication that the bullish trend has resumed. Conversely, if downward support at $2,300 is decisively breached, this could undermine our short-term bullish gold call.”

Zheng Renyuan, the father of target date fund and senior advisor of Fidelity Investments Greater China investment strategy and business, recently told reporters: “In the investment portfolio, if there are only two types of assets (stocks and bonds), the risk is really difficult to control, and you can only choose the time.” But timing is not our strong suit, so in pension investing, more and more institutions are choosing to allocate to gold, alternative assets and even some real real estate for risk diversification.”

Taking the famous Norwegian sovereign wealth fund as an example, the institution has also increased its allocation to gold in recent years, because in the institution’s view, as long as 2% to 5% of the capital is allocated to gold, it can greatly mitigate the risk of the portfolio, because many risks are non-linear.

Three motives drive long-term gold allocation by central banks

In the medium to long term, a recent survey by the World Gold Council also shows that the geopolitical and financial environment has become increasingly complex, making gold reserve management more relevant than ever.

The Central Bank Gold Reserves (CBGR) survey for 2024 was conducted between February 19 and April 30, 2024. The survey received responses from 70 central banks, of which 29% plan to increase their gold reserves in the next 12 months, the highest level since the survey was launched in 2018.

The main motivations for the central banks surveyed to continue buying gold include: rebalancing gold reserves; Adjust the purchase amount of domestic gold in order to achieve a better level of gold strategic reserve; Concerns about volatility in financial markets include increased risk of crisis and rising inflation.

At present, there are frequent conflicts in the Middle East and protracted conflicts in Ukraine. The findings come against a backdrop of ongoing geopolitical tensions. From a macroeconomic perspective, global inflation has begun to cool, but the pace of economic recovery is uneven, and the potential fragility of the financial system is also worrying. As a result, “interest rate levels,” “inflation concerns,” and “geopolitical instability” remain the main considerations for central banks to make gold reserve management decisions, as they did last year.

Almost all central banks believe the dollar’s share of official reserves is likely to fall. Central banks in advanced economies and emerging market and developing economies (EMDE) have been more optimistic about the future share of gold in total global reserves (and correspondingly more pessimistic about the future share of the dollar), and advanced economy central banks have clearly shifted to the same view this year.

What proportion of total global reserve assets will the dollar account for in the future? According to the survey, 69% of central banks surveyed believe that the share of dollar reserves will decline over the next five years, a significant increase from 55% in 2023 and 42% in 2022. 69% of the central banks surveyed believe that the share of gold will increase over the next five years. That’s up from 62% in 2023 and 46% in 2022.

In terms of gold reserves, the People’s Bank of China’s “official reserve assets” data shows that as of the end of June 2024, China’s gold reserves reported 72.8 million ounces, unchanged from the previous month. In the view of analysts, the market’s interest rate cut expectation of the Federal Reserve is an important factor affecting the trend of the US dollar index and global financial asset prices, China’s economic operation continues to pick up and provide support for the foreign exchange reserve scale to continue to maintain basic stability, and the general direction and long-term trend of the People’s Bank of China to continue to increase gold holdings has not changed.

Foreign reserves fell slightly in June from the previous month

Foreign exchange reserves have stood at $3.2 trillion for seven consecutive months. According to the State Administration of Foreign Exchange (SAFE), as of the end of June 2024, China’s foreign exchange reserves amounted to US $322.24 billion, down US $9.7 billion, or 0.30%, from the end of May.

Beijing Business Daily reporter further comparison found that since December 2023, the scale of China’s foreign exchange reserves has continuously remained above the $3200 billion mark. Among them, the scale of foreign exchange reserves in March 2024 reached $324.57 billion, the highest level in the year. By the end of June 2024, the scale of China’s foreign exchange reserves has decreased by 15.6 billion US dollars from the end of 2023.

For the changes in foreign reserve data this month, SAFE pointed out that in June 2024, affected by the monetary policies and expectations of major economies, macroeconomic data and other factors, the US dollar index rose, and global financial asset prices rose overall. Under the combined effect of exchange rate translation and asset price changes, the scale of foreign exchange reserves declined in the month.

“In June 2024, the US economic data was mixed, the market expected the Federal Reserve to start cutting interest rates in September, combined with the European Central Bank to cut interest rates ahead of the Federal Reserve, driving the US dollar index higher, and the overall global financial asset prices rose.” Wen Bin, chief economist at Minsheng Bank.

Specific to the performance of the financial market in June, the exchange rate, the US dollar index rose 1.1% month on month, the main non-US dollar currencies have fallen, the yen, the euro, the pound against the US dollar exchange rate depreciated 2.2%, 1.2%, 0.8%. In bond prices, the dollar-denominated hedged global bond index rose 0.9%. The 10-year European bond yield fell 25 basis points to 2.49%; The 10-year JGB yield edged down 2 basis points from the previous month to 1.06 percent. In terms of stock prices, the S&P 500 rose 3.5%, the Euro Stoxx 50 index was flat month-on-month, and the Nikkei 225 index rose 2.9%.

Zhou Maohua, a macro researcher at the financial markets department of Everbright Bank, pointed out that the change in foreign exchange reserve assets in June was mainly affected by valuation changes. In June, the influential factors were different, the US dollar rose while the prices of major global financial assets rose, but the overall volatility narrowed, and the scale of China’s foreign reserves also maintained low changes.

Gold reserves remain unchanged

In terms of gold reserves, according to the People’s Bank of China’s “official reserve assets” data, as of the end of June 2024, China’s gold reserves reported 72.8 million ounces, unchanged from the previous month. This is also the third consecutive month since April 2024 that China’s gold reserves have maintained this level.

Since November 2022, the People’s Bank of China has continuously increased its gold reserves until May 2024, ending the past “eighteen consecutive increases.” In this round of increased holdings, China’s gold reserves increased by 10.16 million ounces.

Pang Ming, chief economist of Jones Lang Lasalle Greater China, believes that in the past period of time, gold prices have continued to fluctuate at a high level, and the probability of price fluctuations and adjustments in the short term is still not low. In this context, for the second consecutive month, the People’s Bank of China suspended the use of bargain allocation as the main means of operation to increase gold holdings, reflecting that the People’s Bank of China has sought a balance between adjusting and optimizing the structure of international reserve portfolio, ensuring the preservation and appreciation of reserve assets and returns, and reducing portfolio risk and volatility. To coordinate and maintain the unity of international reserve strategy, profitability, liquidity and security.

Zhou Maohua said that the People’s Bank of China’s increase in gold holdings is mainly to optimize the structure of official reserve assets, promote the diversification of official reserve assets, enhance the ability to withstand global financial market fluctuations, and enhance the stability of official reserve assets. From the perspective of the trend, the credit of the US dollar has declined, the global financial market has fluctuated sharply, and the diversification trend of foreign exchange reserve assets of various countries has accelerated, so as to reduce the excessive dependence on a single currency and assets, reduce the impact of overseas policies, and enhance the stability and liquidity of total official reserve assets.

Since March 2024, affected by many factors such as geopolitical conflicts, monetary policy changes in major economies and interest rate cuts by the Federal Reserve, the continuous rise in precious metal trading prices has triggered hot discussions, and gold has repeatedly refreshed its highest trading price in history. According to Wind data, COMEX gold peaked at $2,454.2 per ounce in May 2024. As of the close of July 5, COMEX gold was at $2,399.8 / ounce, up 1.46% on the day.

However, Pang Ming also mentioned that considering the advantages of gold in risk aversion, anti-inflation, long-term preservation and appreciation, China’s People’s Bank in the international reserve portfolio allocation and dynamic adjustment of gold reserves, diversification and rebalancing of international reserve assets policy motivation has not changed, continued to increase the direction of gold and long-term trend has not changed.

Foreign reserves are expected to remain high

For the management of China’s foreign exchange reserves, in June 2024, Zhu Hexin, deputy governor of the People’s Bank of China and director of the State Administration of Foreign Exchange, said in a signed article that it is necessary to further improve the operation and management of foreign exchange reserves, prudently promote diversified and decentralized allocation, improve the risk management system covering the whole process, and actively expand diversified use. We will make every effort to ensure the safety, flow, preservation and appreciation of foreign exchange reserve assets, and better play the role of “stabilizer” and “ballast stone” in safeguarding national economic and financial security.

For the next stage of the scale of China’s foreign exchange reserves, the State Administration of Foreign Exchange mentioned that China’s economic operation continued to pick up to a good trend, high-quality development and solid progress, providing support for the scale of foreign exchange reserves to continue to maintain basic stability.

In Wen Bin’s view, the current international economy has maintained a moderate recovery, the global manufacturing PMI has been above the line of growth and contraction for six consecutive months, and international trade has continued to pick up. China’s commodity export structure continues to upgrade, the foreign trade “circle of friends” further expanded, high-level opening up in an orderly manner, exports are expected to maintain a medium-high growth rate, and continue to play a basic role in stabilizing cross-border capital flows. The steady improvement of China’s economic situation and solid progress in high-quality development will help maintain the overall balance of China’s international payments and lay a solid foundation for the basic stability of the scale of foreign exchange reserves.

Zhou Maohua pointed out that from the trend point of view, the uncertainty of overseas economic and policy prospects is high, the valuation of overseas assets is at a historical high, and the price fluctuations of financial assets continue to disturb the valuation of China’s foreign exchange reserve assets, but there are relatively many favorable factors, and China’s foreign exchange reserves are expected to continue to stabilize at a high of more than 3 trillion US dollars.

“Mainly, China’s economy shows a good recovery trend, foreign trade remains resilient, China, as one of the most dynamic super-large economies, attracts the global long-term capital trend inflows, and the balance of payments remains basically balanced.” At the same time, developed economies are gradually transitioning to a rate cut cycle, restricting the upside of the dollar, and the impact of the dollar on asset valuations is expected to weaken.” Mr Zhou added.

In terms of gold reserves, Zhou Maohua believes that the current gold price itself is not low and is at a historical high, but there is still room for global central banks to buy gold, but there is uncertainty in the pace of buying gold. It is a trend for central banks to diversify official reserve assets, reserve gold and optimize the reserve structure of official assets are long-term strategic considerations, and the rhythm of gold reserve will remain flexible in the short term.

Into 2024, the gold market is shining, the price has hit a record high, the London gold spot price has reached a maximum of 2450.1 US dollars/ounce, once known as the commodity market “the most beautiful boy”.

However, since late May, the momentum of the gold market has been slightly insufficient, and the overall high volatility has fallen by more than 3% on June 7. As of June 14, the current cumulative decline from the previous high of nearly $100 / ounce.

The correction of the high price of gold can not help but cause the investors who poured into the market in the early stage to worry, whether the gold price will open a falling channel? Do the bulls stay or go?

Gold high correction

In the first half of the year, the overall performance of the gold market was bright. According to Wind data, the spot price of gold in London bottomed out in mid-February, began a continuous rapid rise in early March, and then the price hit a record high, reaching a maximum of $2450.1 / ounce on May 20, but then it suffered a correction, falling 3.45% on June 7. As of the close of June 14, it was at $2332.3 / ounce, down more than $100 / ounce from the previous high, and the cumulative increase since the first half of the year reached 13.08%.

Cicc analyst Guo Zhaohui said that in addition to the steady pace of the central bank’s gold purchase, the speculative market continued to price the Fed’s interest rate cut expectations and the demand for geopolitical hedging, which all contributed to the rise in gold prices in the first half of the year.

For the recent trend of gold price correction, Liu Shiyao, a precious metals researcher at Zijin Tianfeng Futures, analyzed that it was mainly affected by the suspension of continuous gold buying by the Central Bank of China and the impact of non-agricultural data in the United States in May.

China’s gold reserves stood at 72.8 million ounces at the end of May, unchanged from the end of April and ending an 18-month streak of increases, according to the official reserve assets table.

Liu Shiyao said: “In terms of the situation in 2019, after the Chinese central bank suspended its gold purchase, the central banks of emerging markets such as Turkey, India and Poland are still strongly involved, driving a significant rise in international gold prices.”

On the performance of the US non-farm data in May, Liu Shiyao analyzed that the current situation of the US labor market was not as strong as the non-farm data showed. In addition, recent economic data does not reinforce the Fed’s cautious stance on monetary policy, such as the U.S. inflation number has declined for two consecutive months, and the ISM manufacturing index has slowed for two consecutive months. Even if the dot plot and official statements released at the June Fed interest rate meeting show a more hawkish message, the Fed rate cut is increasingly likely to fall.

Fed rate cut could be watershed

In terms of the pricing factors that currently affect the trend of gold, such as the Federal Reserve’s interest rate cut, the central bank’s purchase of gold, the trend of the US dollar, and the demand for risk-averse allocation, the future may still bring positive support to the gold market.

“The ‘watershed’ for the gold market could be the Fed’s rate cutting boot.” Guo Zhaohui said that the policy shift before the interest rate cut, or the value of precious metals assets highlight the moment, the positive interest rate cut expected trading may continue. However, after the interest rate cut, the reflexivity of the market trading may trigger the bubble burst, when the interest rate cut expected trading to interest rate cut trading, as the economic expectations improve, the market or will turn to focus on the economy from the “slowdown” to the “expansion” of the cycle switch, compared with the counter-cyclical precious metal assets, pro-cyclical commodities may be more favored.

From the perspective of global gold reserves, global central banks continue to increase their holdings of gold, promoting the increase in gold demand to drive up prices. Zhai Kun, analyst of non-ferrous metals industry at Deppon Securities, said that as of May 2024, the global gold reserve scale was about 36,004.18 tons, up 194.91 tons from the end of 2023 and 65.27 tons from the previous month. Although China’s central bank did not increase gold storage in May, global gold reserves are still on an upward trend, and other countries still have momentum to increase storage. It is expected that the continuous increase in global gold reserves will boost the price of precious metals such as gold in the long term.

Short-term adjustments are unlikely to change the long-term upward trend

In the short term, Zhai said that the previous US non-farm employment data has been backtracked several times, and the credibility level of relevant data under the expected management of the Federal Reserve has declined, so the volatility of gold prices may increase.

Overnight session, rubber futures led the rise. Butadiene rubber rose nearly 7%, No. 20 rubber rose more than 5%, and rubber rose more than 4%.

In precious metals, as of this morning’s close, the main Shanghai gold contract rose 0.75 percent, the main Shanghai silver contract rose 4.54 percent, COMEX gold futures closed up 0.65 percent at $2,390.9 an ounce. Silver futures rose 4.3 percent to settle at $31.367 an ounce on COMEX. At the close of trading, spot gold was above $2,370 an ounce, up more than 0.7% on the day.

On June 6, local time, the European Central Bank held a monetary policy meeting and decided to cut interest rates by 25 basis points after maintaining high interest rates for 22 consecutive months, the main refinancing rate was reduced to 4.25%, the marginal lending rate was reduced to 4.50%, and the deposit mechanism interest rate was reduced to 3.75%. The last time the ECB cut rates was in September 2019.

“Based on the latest assessment of the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission, it is time to moderate the degree of monetary policy restraint after holding interest rates steady for nine months.” ‘The Governing Council will continue to follow a data-based, meeting-by-meeting approach to determining the appropriate level of restraint and will not pre-commit to a particular interest rate path,’ the ECB wrote in its announcement.

Market players: Precious metals still have room to rise in the future

For the strength of the precious metals sector on Thursday, Gong Ming, deputy director of the Jinrui Futures Research Institute, believes that the main reason for the rally in precious metals is that the number of “small non-farm” – ADP employment in May in the United States released on Wednesday was lower than expected. “The employment boom has fallen, on the one hand, prompting the Federal Reserve to cut interest rates in advance; On the other hand, the resilience of the US economy has been weakened. Therefore, the short-term weakness of the dollar has also helped precious metals.” She said there have also been some changes in the recent geopolitical conflict, after Biden proposed a cease-fire, but Hamas demands a full end to the Gaza war and Israeli withdrawal, cease-fire negotiations may run aground.

Ye Qianning, a precious metals researcher at Guangfa Futures, said that since April, the gold basis has declined significantly, and although the basis has rebounded after May, there is still a gap between the level before March. In the first quarter of this year, the total domestic demand for gold jewelry was 184 tons, down 6% year-on-year, and futures inventories rose sharply after May, reflecting the current physical consumption demand for gold was suppressed, which also limited the space for gold prices to rise.

Gu Jiannan, assistant general manager of Haitong Futures investment advisory Department, believes that the rally in the precious metals sector on Thursday was affected by two events the night before: first, the Bank of Canada started to cut interest rates, and the second is that the “small non-agricultural” data in the United States was lower than expected. “In the latest week, US economic data continued to be lower than expected, US Treasury yields continued to decline, interest rate cut expectations gradually rose, the fundamentals of precious metals have strong support, but in the previous few trading days, other commodities represented by crude oil generally adjusted, led the precious metals down.” ‘he said.

Ye Qianning said that at the beginning of this week, due to the Opec + production cut less than expected, the Indian election result surprised the market and other factors, the market sentiment was cautious and temporarily left, the price of crude oil and other industrial products fell, dragging down precious metals, and the gold price once fell below the 20-day average support. On the evening of June 5, the Bank of Canada announced a rate cut as scheduled, while the number of ADP jobs in the United States fell sharply in May, the speed of economic recovery in the United States or further slowdown, enhancing the Fed’s interest rate cut expectations, superimposed on June 6, the European Central Bank also announced a rate cut, under the influence of monetary policy is about to turn to easing factors, market sentiment improved rapidly, precious metals also stopped falling.

“At present, the main reason for the increased volatility in the precious metals market is the frequent volatility of interest rate cut expectations.” Gong Ming said that the recent US economic resilience weakened, inflation, employment and economic growth data often repeated, and there are contradictions between various economic indicators. Since May, the Fed has struggled to balance economic resilience with inflation stickiness, so expectations management has gone back and forth.

Looking ahead to the future market, Gong Ming believes that precious metals are still expected to have a short-term correction, but the space for a correction is limited. In the short term, there is greater uncertainty about the actual path of the Federal Reserve’s interest rate cut, and the possibility of actual interest rate cuts in June and September is low. But given that real yields have risen significantly, the scope for further upside is limited. At present, the excess savings of US residents have been exhausted, and there is downward pressure on economic resilience. The space for this precious metal correction is limited, and investors are advised to focus on the support level of $2300 / ounce. In the medium and long term, under the background of geopolitical conflicts and anti-globalization, the probability of precious metals will further rise.

Ye Qianning believes that short-term precious metals are affected by macro news, and the frequency of fluctuations may rise and form a wide volatile market. Despite the ECB’s interest rate cut, the recent rebound in prices in the euro area has implications for the pace of subsequent monetary policy easing. In the case of gold prices remain relatively high, the Chinese central bank has recently reduced the scale of gold purchases, while physical consumer demand has also been affected, and gold futures inventories have risen significantly, reflecting relatively sufficient supply. Gold’s upside is limited due to the lack of new bullish drivers. In the second half of the year, the US economy is likely to accelerate deterioration, employment and inflation will further weaken, and the Fed policy will be changed. The price of precious metals is optimistic in the long term, and in the process of adjustment, it is suggested that investors can choose to buy on dips.

Gu Jianan said that the most important data in the short term is the non-farm employment data on Friday evening, and the market is now expected to be 190,000, and if the final data is within the normal range of 200,000, or further raise interest rate cut expectations, prompting precious metals to further rise. In addition, the US inflation data for May is also very important. In the second half of the year, with the rapid decline of the housing component, inflation is also likely to further decline. Throughout the year, the current monetary policy of the Federal Reserve from the tightening cycle to the easing cycle of the point, and the central bank’s gold buying behavior on the one hand to amplify the rise of precious metals, on the other hand will reduce the space for precious metals callback, precious metals prices still have room to rise in the future.

On the 6th local time, the European Central Bank announced the latest interest rate resolution, as expected by the market, announced a cut of 25 basis points.

The ECB’s decision to cut its main refinancing rate, marginal lending rate and deposit facility rates by 25 basis points to 4.25 per cent, 4.5 per cent and 3.75 per cent, respectively, was the first cut since the central bank raised its benchmark rate to an all-time high of 4.5 per cent last September and was widely expected.

Affected by the news of possible interest rate cuts, all three major European stock indexes rose, and the FTSE index in London swung up after the opening today, once rising to 8273.76 points, up 0.3%; The CAC-40 in Paris turned positive after opening slightly lower, earlier rising more than 0.5% to 5,048.60; The DAX index in Frankfurt, Germany, went all the way higher, surging more than 200 points, up more than 1%, to 18,778.46 points, hitting a record high in the German stock market.

In terms of bonds, the market has digested the strong expectation of interest rate cuts in advance. The bond markets of Britain, France and Germany reacted differently, and the yield of German 10-year government bonds rose slightly by 2 basis points, fluctuating between 2.53% and 2.54%. French ten-year bond yields swung up, recovering the important 3% mark; Yields on UK 10-year gilts fell slightly before bouncing back in the afternoon to trade around 4.185%.

Euro zone inflation rose for the first time this year to 2.6% in May, according to Eurostat, and Bank of Italy governor Fabio Panetta said higher inflation was “neither good nor bad,” while Bank of Portugal Governor Mario Centeno said higher inflation was “not significantly overshooting” expectations and would not stop the ECB from starting to cut interest rates. But investors expect the ECB to take a more cautious approach to rate cuts for the rest of the year. Markets expect the ECB to cut interest rates two to three times this year, each by 0.25 percentage points. ECB chief economist Philippe Lane said the pace of further rate cuts would depend on the path of underlying inflation and the level of demand, warning that cuts were likely to be “bumpy and gradual”.

Analysts: Lower interest rates will create more financing opportunities for European economic growth

So what was the main reason behind the ECB’s 25 basis point rate cut? And how will it affect financial markets? Will the ECB start an “easing cycle” in the future? Let’s hear it from a professional.

This is the first time that the European Central Bank has cut interest rates since 2019, marking its formal joining the camp of major global central banks that have taken the lead in cutting interest rates, and the monetary policies of European and American central banks have significantly differentiated.

Su Jian, Professor of Economics at Peking University: On the one hand, the current unemployment rate is relatively low, and the inflation rate is already below 3%. The problem is that the economy is growing at a low rate, 0.3% last quarter and 0% the quarter before that. At this point, [the ECB] has some room to cut interest rates to focus more on promoting [economic] growth.

Inflation in major developed economies has continued to fall this year, but the US Federal Reserve and the Bank of England have opted to “sit tight” and the Bank of Japan is seen as more likely to continue raising interest rates.

Analysts believe that the interest rate cut will create more financing opportunities for European economic growth, and the outlook for corporate earnings will also improve, which will benefit the European stock market, especially small and medium-sized stocks.

Dirk Steffen, global Chief investment strategist at Deutsche Bank Group: We expect the euro may weaken slightly as the ECB cuts rates first, but this is unlikely to last too long, and looking ahead, as interest rates edge lower. Coupled with a slightly better euro economy, it should also be a positive environment for small – and mid-cap stocks.

Although the ECB cut rates earlier than the US Federal Reserve and the Bank of England, economists believe this does not signal the start of an “easing cycle”. In the future, the ECB’s decision to cut interest rates will be more “moderate” and “measured”.
Xing Ziqiang, chief China economist at Morgan Stanley: If it (the European Central Bank) cuts interest rates too fast and too sharply, the euro will weaken relative to the dollar, and in this process, this imported inflation may rise again, so we estimate that the next time it (the European Central Bank) will cut interest rates gently and gradually, for example, maybe three times this year, one time in June, September and December.

In addition, piglets have also become “hot goods.”

“Thanks to the completion of pig replenishment in early April this year, otherwise the breeding cost would have been too high.” Ma Zhangru, a pig farmer in Hanzhang Town, Nanle County, Henan province, told the Futures Daily reporter that the price of piglets of about 15 pounds when he made up the column was 450 yuan/head, and now it has risen to 720 yuan/head, up more than 50%.

Ma Zhanru said that the number of pigs has been added to 300, according to the current domestic pig output and the rising trend of pork prices to calculate that the end of this year’s pig prices will rise a lot, breeding profits are considerable.

“Pig prices rose sharply in the short term, coupled with corn, soybean meal, wheat prices continue to fall, and now many free-range farmers began to actively fill the column, but I have to wait.” Because the current price of piglets is too high, if the pig disease prevention and control is not good after the field, the survival rate is low, then even if the late pig market price is high, it will lose money. In addition, the previous two years to raise pigs, cattle losses are more, and now do not dare to boldly go to the field.” Liu Jianye, a pig farmer in Shuangmiao Township in Biyang County, Henan province, said his pig pen and cattle shed are still empty and he is considering whether to replace the pen.

Zhou Xin, a pig researcher at Zhongcai Futures, told reporters that since May, the domestic spot price of pigs has continued to rise, and the price of pigs has risen from 7.5 yuan/catty in early May to 9.25 yuan/catty, which is a relatively large increase in the short term.

“There are two main factors leading to the rise in pig prices: First, since the second half of last year, the number of breeding sows has declined continuously, making the current supply of pigs market gradually reduced, and the future supply is expected to be tight.” Second, in the process of continuous rebound in the price of live pigs, the profit of pig fattening and weight gain is highlighted, adding impetus to the second breeding and pressure of the breeding link. However, from the data released by relevant institutions, the current number of live pigs and post-slaughter weight are at a high level in recent years, which is expected to form a certain pressure on the number of live pigs in the third quarter, thereby suppressing the price of live pigs.” Zhou Xin said.

Gan Yuantian, a senior figure in the Hunan pig industry, said that recently, the Guangdong region’s “two miscellaneous” delivery price was 9.4 yuan/jin, and the “three miscellaneous” and “four miscellaneous” delivery price was 9.8 yuan/Jin, which showed a stable and rising operating trend. From the overall situation of the national pig market, the increase in the number of secondary fattening supplements in May exceeded market expectations, and the epidemic at the end of last year damaged the capacity of free-range farmers in the northern market, which further exacerbated the performance of the staged lack of pigs. At the same time, the national pig stock and the number of breeding sows have declined, and the current pig stock is at the lowest level since 2021, which means that the effect of early capacity removal is gradually emerging, and with the subsequent improvement of supply and seasonal pick-up in demand, pig prices are expected to continue to rise in the future.

“At present, after the average price of pigs in the country broke 9 yuan/catty, the market is also more and more optimistic about the price of pigs in the later period, the enthusiasm of the breeding link began to increase, and the price of piglets has gained a stronger upward momentum, such as the price of piglets of about 15 catty in the country exceeded 700 yuan/head.” Zhou Xin said that due to the large increase in pig prices, the domestic pig farming industry has finally got rid of the plight of industry-wide losses since mid-to-late May, and has turned into industry-wide profits. It is understood that the current profit of self-breeding pig in some production areas has exceeded 200 yuan/head. However, due to the large rise in the retail price of live pigs and pork, the price advantages of alternative products such as cattle, sheep, fish and poultry began to appear, the pig breeding industry is still facing a large risk of price fluctuations, farmers and breeding enterprises can timely use pig futures and options tools for risk management.

According to Liu Shunchang, on June 2, the OPEC+ meeting extended the production cut of 2.2 million barrels per day in the first half of the year to the third quarter, and said that starting from the fourth quarter, voluntary production cuts may be phased out. Previously, the market expected that the production cut would be extended to the end of this year, after the OPEC+ meeting, the market mentality and expectations changed, from the former concern about OPEC+ continued to exceed the expected production cut to support oil prices to when OPEC+ began to relax the production cut.

Du Bingqin, an analyst at Everbright Futures, believes that although OPEC+ has given the time point for each member country to gradually withdraw from the production cut plan from September this year to next year and the expected production of each member country, if the price of oil falls more than expected in the later period, OPEC+ may adjust the production cut plan at any time.

Zheshang Securities analyst Ren Yuchao agreed: “OPEC+ has a collective appeal to maintain high oil prices. In addition, the meeting also asked Iraq, Russia and Kazakhstan to begin in the near future to make further compensation for voluntary production cuts that were not implemented in the first half of the year, and overall, OPEC+ overall supply will contract further in the coming months.”

“However, the outcome of this OPEC+ meeting does reflect the organization’s intention to gradually abandon the production reduction insurance strategy to a certain extent and begin to focus on market share, so market expectations are relatively pessimistic.” Du Bingqin said.

Looking ahead to the future market, Liu Shunchang said that it is necessary to focus on the follow-up economic data of the United States, if the economic data of the United States continues the weak performance of nearly 1 month, oil prices will continue to face pressure. On the demand side, it is recommended to focus on the extent of the Northern Hemisphere consumption season.

Du Bingqin believes that the OPEC+ this round of production cut resolution basically keeps the fundamentals of the global crude oil market tight before the third quarter, but further upward oil prices also need to improve the actual demand. Recently, in the case of the opening of the northern Hemisphere summer demand season, last week’s US gasoline inventory data unexpectedly increased, and there was uncertainty on the demand side. It is suggested to pay more attention to the realization of overseas demand and China’s imported crude oil demand.

Wu Hai, a researcher at the Hongye Futures Financial Research Institute, said that considering that some member states can “gradually withdraw” from the voluntary production reduction plan, the new production reduction agreement actually leaves a lot of room for subsequent adjustments. Despite the risk of marginal deterioration in fundamentals, with oil prices above $70 / BBL in the fiscal balance of major producers, OPEC+ still has an incentive to keep prices relatively high. In the future, high-frequency data including refinery starts, product inventory levels and cracking spread changes can be watched.

CMX silver futures prices in the previous high platform of 29.5 US dollars/ounce to gain support, back to 30 US dollars/ounce, CMX gold futures prices rose sharply to nearly two weeks of shock platform high, the current price above 2380 US dollars/ounce, is expected to break through 2,400 US dollars/ounce.

On the news, the Bank of Italy announced a rate cut of 25bp, it is expected that the European Central Bank’s interest rate cut is imminent, weak US employment data, and the impact of other central banks’ interest rate cuts, the market expects the Federal Reserve to increase the probability of interest rate cuts in September.

Overnight, ADP employment data released on Wednesday showed that the US private employment increased by 152,000 in May, the smallest increase since February, significantly lower than the market’s previous estimate of 173,000, and April’s data was revised down from 192,000 to 188,000.

With data showing the U.S. labor market cooling and hawkish market expectations cooling, CME Group’s Fed Interest Rate Watch tool shows about a 70 percent chance that policymakers will cut rates in September. Both stocks and Treasuries extended their rally.

Mixed US economic data combined with slightly increased expectations of an interest rate cut contributed to a rally in precious metals prices yesterday evening and this morning.

The US ISM non-manufacturing index for May was released overnight, recording 53.8, significantly higher than market expectations of 51 and the previous value of 49.4, the largest increase in six months, including the business activity index the largest monthly increase since 2021, indicating that the US service economy is still resilient, and the financial market is less worried about the US recession.

In the short term, the United States has more economic data to show signs of turning point, the financial market in the face of weaker than expected data gradually believe that the United States short-term inventory cycle once again down the fact that the European Central Bank will hold an interest rate resolution meeting, the market is expected to cut interest rates, while the United States will release weekly unemployment applications, concerned about the disturbance to precious metals prices.

Guangzhou Futures suggested that this week focus on the European Central Bank’s interest rate resolution on Thursday and the performance of the US non-farm employment data on Friday, and overseas interest rate expectations will be revised based on the comprehensive performance of US employment.

At present, the overseas market is expected to cut interest rates again in advance, this week the European Central Bank or will start to cut interest rates, although the Federal Reserve has recently maintained a hawkish position, but it is still a greater probability event to start cutting interest rates within the year.

In the environment of falling interest rates, for zero interest assets silver as a whole, after the market correction or bring layout opportunities, short-term ideas suggest paying attention to unilateral long Shanghai silver opportunities.

Big futures analysis said that in the short term, whether the US economy can soft landing remains to be seen, the Federal Reserve hesitated to cut interest rates, or will continue to observe the performance of several periods of relevant data, in the short term, it is difficult for gold and silver prices to return to the upward trend, or continue to shock.

Affected by this news, non-ferrous metals also rose in the morning. As of press release, international copper and Shanghai copper both rose more than 1%

Conocophillips’ deal with Marathon Oil is the latest example. As the largest independent oil and gas producer in the U.S., Conocophillips, like other oil companies, has been scrambling for a share of existing drilling in the U.S., buying other smaller companies to boost its cash flow and earnings to keep its investors happy.

Conocophillips CEO Ryan Lance has said the U.S. oil and gas industry needs to consolidate. There are simply too many players, and it is time to focus on scale and diversity, as consolidation is part of the industry’s natural cycle.

Commenting on the Marathon Oil acquisition, Lance said the deal would be immediately accredit to Conocophillips’ earnings per share, cash flow and dividend, and that Conocophillips sees significant synergies.

Merger frenzy

Rather than opening new lines of business, U.S. oil companies prefer to use mergers and acquisitions to boost market valuations, which can bring developed and operating Wells into production immediately, rather than having to invest a lot of money to start from scratch.

Conoco’s acquisition of Marathon would give Conoco a market capitalisation of more than $150bn, a surge that would extend its leading position as an independent oil producer and put it in the same league as the world’s leading companies, above BP and just below Shell.

In addition to Conocophillips, ExxonMobil is buying Pioneer and Chevron is working with Hess on oil resources in Guyana. Last year, Occidental acquired privately held CrownRock in a cash-and-stock deal.

Stewart Glickman, senior equity analyst at CFRA, said that during the recent wave of mergers and acquisitions, the U.S. oil and gas industry has preferred to grow organically by acquiring portfolios of other companies rather than spending more money to drill new Wells.

Matt Willer, managing director and partner of Capital markets at Phoenix Capital, said oil producers realize that oil and gas may not disappear and are racing to make up for lost investments in the past. The oil industry has experienced more than a decade of underinvestment due to the green transition, leading to the current wave of mergers and acquisitions.

Spending on mergers and acquisitions by US oil and gas companies rose to $234bn last year, the largest amount since 2012, according to the US Energy Information Administration. A Dallas Fed survey showed the industry expects more M&A activity in the next two years.

Warren Buffett’s Berkshire Hathaway Class A shares plunged 99.97% to $185.10 in early trading on Monday due to technical problems. Berkshire Hathaway Class B shares were not affected by the technical glitch.

As of Monday’s close, Berkshire Hathaway Class A shares were up 0.59 percent at $631,10.1, while Berkshire Hathaway Class B shares were up 0.09 percent at $414.79.

Berkshire Hathaway Class A shares are not the only ones affected, according to the Unified Securities Quotations Association (CTA), there are dozens of stocks affected, and other well-known stocks involved include Barrick Gold and NuScale Power. CTA is the organization that provides real-time stock quotes to the major exchanges.

As for whether trades completed during the abnormal stock price display were valid, according to media reports, the New York Stock Exchange said in an email that erroneous trades caused by technical problems were considered invalid. Nyse, along with other unlisted Trading Privilege (UTP) exchanges, has ruled to cancel all erroneous trades in Berkshire Hathaway priced at $603,718.30 or less between 9:50 a.m. and 9:51 a.m. Et related to the CTASIP issue.

Under normal circumstances, Berkshire’s Class A shares are among the most expensive on Wall Street, hitting an all-time high closing price of $634,440 on March 28. As of last week, Berkshire’s Class A shares were selling for about 45% more than the median price of a U.S. home.

Berkshire Hathaway Class A shares are so high mainly because Buffett has never split the stock, as he wants to attract shareholders with a long-term investment horizon. Buffett has said that many Berkshire shareholders treat their shares like savings accounts.

Still, Berkshire issued Class B shares in 1996 at 1/30th the price of Class A shares to cater to small investors who wanted a piece of Buffett’s performance.

Buffett is Berkshire’s largest shareholder, owning more than 38 percent of the Class A shares, according to FactSet. Buffett, who has run Berkshire since 1965, has pledged to give away the wealth he has amassed at the company.