Industrial metals rise benefiting from the AI industry chain; AI disruption theory weighs on US stocks; Japanese summer fiscal events become the focus --- 0218 Macro Distillation

Industrial metals rise benefiting from the AI industry chain; AI disruption theory weighs on US stocks; Japanese summer fiscal events become the focus --- 0218 Macro Distillation

```

  1. Since August 2023, precious metals and industrial metals prices have surged. The driving factors of this cycle are slightly different: gold prices have not risen due to loose monetary policy, and industrial metal prices are not driven by traditional economic recovery, but rather the AI industry chain.
  2. Impacted by the "AI disruption theory," the market is concerned that profit models in finance, logistics, real estate and other industries may be replaced by AI, leading to a panic sentiment of "sell first, ask later." Even the positive news of US CPI inflation being lower than expected failed to stop the decline.
  3. After the victory of Japan's Liberal Democratic Party, investors interpreted it as a slight tightening of fiscal stance, and yen interest rates briefly flattened. Multiple key events will occur in the summer, including national discussions on temporary consumption tax reduction, formulation of basic policy in June, and announcement of preliminary 2027 fiscal year budget requirements in August.

1. Industrial Metals Rise Benefiting From AI Industry Chain

Industrial Metals Rise Benefiting From AI Industry Chain (China Galaxy)

China Galaxy points out that since August 2023, precious metals and industrial metals prices have surged. The driving factors of this cycle are slightly different: the rise in gold prices is not due to loose monetary policy, and the rise in industrial metal prices is not driven by traditional economic recovery, but rather the AI industry chain.

  1. Since August 2023, precious metals and industrial metals prices have surged.
    • London gold prices have risen by 45.6%, silver by 103%, and COMEX copper prices have risen by 15% since September.
    • The market expects crude oil may become the next asset to rise.
  2. Compared with previous cycles, the driving factors of this round of commodities are somewhat different.
    • Gold prices began to rise in July 2023, which was still during the Federal Reserve's rate hike cycle.
    • Therefore, the main drivers are de-dollarization expectations, increased global central bank demand for gold, and geopolitical risk premiums, rather than loose monetary policy.
    • The rise in industrial metal prices is not driven by traditional economic recovery, but due to increased copper demand throughout the AI industrial chain and the prominence of copper as an important strategic metal.
    • As global electrification and clean energy transformation accelerate, crude oil demand growth slows, and oil prices can no longer be quickly driven purely by traditional economic recovery.

Historically, the transmission logic from precious metals to industrial metals to crude oil in multiple commodity cycles has indeed been effective.

2. AI Disruption Theory Drags Down US Stock Performance

AI Disruption Theory Drags Down US Stock Performance (Tianfeng)

Tianfeng points out that impacted by the "AI disruption theory," the market worries that profit models in finance, logistics, real estate and other industries may be replaced by AI, leading to panic sentiment of "sell first, ask later." Even the positive news of US CPI inflation being lower than expected failed to stem the decline.

  1. Under "AI Disruption Theory," the market reassesses whether companies' profit models may be replaced by AI and falls into a panic mentality of "sell first, ask later," with all three major US indexes dropping on February 12.
    • In financial services, the market worries that AI tools may replace the wealth management business model.
    • In logistics and transport, a micro-company Algorhythm claims its AI logistics platform can expand freight volume without adding operating personnel, disrupting traditional logistics service business models.
    • In real estate, AI may lead to a sharp decline in demand for office space.
  2. A shares weakened amid overseas sentiment shocks; US Treasury yields declined, but the offshore and onshore RMB exchange rates broke through the 6.90 key level on February 12.
    • The extra-long nine-day Spring Festival holiday may boost consumer spending and policy expectations at the "two sessions," so A shares are expected to turn warm after the holiday.
    • Historically, small-cap growth stocks usually outperform post-holiday, while large-cap growth and high-dividend assets are also expected to strengthen concurrently.

Although US CPI inflation was lower than market expectations, cooling inflation still failed to counter AI concerns, causing the three major US indexes to turn lower after rising.

3. Japan's Summer Fiscal Events Become Focus

Japan's Summer Fiscal Events Become Focus (J.P. Morgan)

J.P. Morgan points out that after the Liberal Democratic Party victory in Japan, investors interpreted it as a slightly tighter fiscal stance, and yen interest rates briefly flattened. Multiple key events are coming this summer, including national discussions on temporary consumption tax reduction, formulation of basic policy in June, and announcement of preliminary 2027 fiscal year budget requirements in August.

  1. After the LDP achieved an overwhelming victory, yen interest rates continued to flatten until reversing last Friday.
    • Investors generally interpret the LDP victory as a signal for a slightly less expansionary fiscal stance.
    • Fiscal risks have not disappeared; key fiscal events will occur in the summer:
      • National conference discussions on temporary consumption tax reductions and refundable tax credit systems, followed by the release of a mid-term report.
      • Formulation of basic policy in June.
      • Preliminary requirements for the initial 2027 fiscal year budget to be announced in August.
  2. Although the USD/JPY rate has dropped recently, overnight index swap pricing has changed little.
    • If the Bank of Japan raises rates this spring, it will break the rhythm so far.
    • The market will likely start to price in a cycle of one rate hike per quarter, leaving room for repricing.
  3. Recently, news about a series of $550 billion investment plans has been released.
    • Minister Akizawa Ryomasa visited the US, but no projects were announced by Japan and US.
    • Media reports say three projects are being considered as part of the first batch, with an expected total business scale of about $42.5 billion.

The market may currently underestimate the possibility of implementing consumption tax reductions.

Risk Warning and DisclaimerThe market involves risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions herein are suitable for their specific circumstances. Investing based on this content is at your own risk. ```