In the previous issue, we reviewed the past 40 years of interest rate cuts and summarized the impact of interest rate cuts on commodity markets, ultimately concluding that there are both risks and opportunities, but the risks outweigh the opportunities! In this issue, we will focus solely on the non-ferrous metal sector. Especially copper, as a barometer of the global economy, where is it heading next? Interest rate cuts are coming! How should non-ferrous metals respond? Want to get more futures T+0, multi-directional learning materials? 【Message me in the background】 to receive them!

The impact of interest rate cuts on non-ferrous metals is mainly reflected in five aspects:

1. Increase in money supply and liquidity. The increase in liquidity will drive investors to seek higher-return investment channels, including the non-ferrous metal market. This may increase the trading activity and price level of the non-ferrous metal market.

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2. Depreciation of the US dollar exchange rate. The depreciation of the US dollar will make non-ferrous metals priced in US dollars relatively cheaper in the international market, thereby attracting more buyers and driving up the prices of non-ferrous metals. This exchange rate change has a direct impact on the non-ferrous metal market because non-ferrous metals are usually priced in US dollars.

3. Increased investment demand. Although the safe-haven attributes of non-ferrous metals are not as strong as gold, they may also be somewhat boosted. The improvement of economic growth expectations will increase the demand for non-ferrous metals and other commodities, thereby driving up their prices.

4. Changes in supply and demand relationships. Interest rate cuts may promote investment and consumption in manufacturing, infrastructure construction, and other fields, thereby increasing the demand for non-ferrous metals. With increased demand, the lag in supply may lead to further increases in the prices of non-ferrous metals.

5. Market expectations and investor behavior. When the market expects the Federal Reserve to cut interest rates, investors may adjust their portfolios in advance, increasing their investments in non-ferrous metals and other commodities. This change in expectations will directly affect the demand and prices in the non-ferrous metal market.

The impact of Federal Reserve interest rate cuts on copper prices:

Copper is one of the representative industrial metals and is closely related to global economic activity.We attempt to discern the subtle clues of copper price fluctuations through past interest rate reduction cycles. During the rate cut period from 2001 to 2003, the international crude oil prices initially fell and then rose. At the onset of the rate cuts, the price of electrolytic copper was already in a downward trend. During the rate cuts from 2007 to 2008, the overall price of electrolytic copper fell. Similarly, at the beginning of the rate cuts, the price of electrolytic copper was already on a downward trajectory. From the end of 2007 to the beginning of 2008, there was a period of price increase, followed by a significant price drop during the subsequent rate cuts. From August to October 2019, the overall price of electrolytic copper fluctuated significantly. In March 2020, during the rate cut period, the overall price of electrolytic copper fell.

This time, at the onset of the rate cuts, the price of electrolytic copper is already in a downward trend. The magnitude of the Federal Reserve's rate cuts remains uncertain, and in the short term, one should still be vigilant about the impact of lower inflation expectations and a weakening US stock market on market risk appetite; the domestic economy continues to be relatively weak, and attention should be paid to the impact of policy changes on sentiment. From an industrial perspective, it is expected that the domestic refined copper supply and demand will continue to be in shortage in September, with overseas demand expectations slightly improving, and the pressure of inventory increases due to deliveries may be somewhat alleviated. Overall, the industrial outlook is more positive for copper prices, while the macroeconomic uncertainties are significant; if there are no policies exceeding expectations, copper prices are expected to continue to bottom out, and if policies are stronger than expected, copper prices may bottom out and rebound.

The impact of the Federal Reserve's rate cuts on other non-ferrous metals

Similar to copper, other non-ferrous metals such as aluminum, lead, zinc, nickel, and tin may also be affected by the Federal Reserve's rate cuts. However, due to differences in the supply and demand relationships and market structures of different non-ferrous metals, their price trends may vary.

In terms of nickel, the oversupply situation of refined nickel remains unchanged, with inventories continuing to accumulate, market pessimism is heating up, and nickel prices are under pressure to fall. However, against the backdrop of firm ore prices, the current nickel price may have already reflected the pessimistic expectations of the nickel fundamentals, and macro sentiment remains the key force determining the current trend of nickel prices.

For aluminum, on the supply side, the production of electrolytic aluminum remains stable, and high temperatures have not affected the capacity of electrolytic aluminum; on the demand side, as September enters the peak consumption season, the consumption of automobiles and home appliances maintains a year-on-year growth trend compared to last year, while real estate data remains at a low level. With the supply side remaining stable and the demand side showing divergence, it is expected that aluminum prices will show a volatile trend in the future.

Regarding tin, affected by maintenance, it is expected that domestic refined tin production will drop significantly in the third quarter. On the demand side, the current consumption of photovoltaic and automotive products has limited growth compared to the same period last year, but it is expected to grow on a month-on-month basis after entering the peak season. In terms of inventory, after the price drop, domestic inventory began to destock, and warehouse receipts continued to decline. It is expected that after a significant drop, tin prices will show a trend of consolidation.

For lead, the limited boost in consumption expectations brought by the policy of exchanging old for new and subsidies for lead-acid battery replacement with lithium batteries, the short-term lead ingot supply is relatively loose, and the start-up rate of storage companies continues to decline, with the fundamentals maintaining weak operation. The sharp drop in crude oil prices has quickly pulled down inflation expectations, and the overall price center of commodities has shifted downward. With no prominent contradictions in its own fundamentals, it is expected that the single-sided price will operate weakly.

In terms of zinc, the actual production reduction of smelters may not meet the excessively high expectations after the CZSPT meeting, and with the supply of zinc ore increasing during the period, the pull of the peak season expectations is limited. Coupled with a slight decline in US economic data and the sharp drop in crude oil prices pulling down inflation expectations quickly, the overall price center of commodities has shifted downward. The weakening of black series commodities has put pressure on profits on the demand side, and it is expected that single-sided prices will operate weakly. However, the strong operation of the internal and external ratio and the high maintenance of the monthly price difference also require vigilance for the rebound risk brought by the exit of short positions taking profits.