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Market Overview

The US CPI inflation rate fell for four months in a row in July, and the core CPI hit a new low for more than three years, consolidating market expectations that the Federal Reserve will start cutting interest rates in September. However, since the CPI was basically in line with expectations and housing inflation was heating up, traders lowered their bets on a sharp interest rate cut by 50 basis points in September.

US stocks fell sharply at the beginning of the session after opening higher. At noon trading, the NASDAQ index fell again and narrowly closed higher. The S&P Index rose for five consecutive days, and the small-cap stock index fell throughout the day. The “Panic Index” VIX fell by more than 10%, completely erasing the monthly increase. The chip stock index fell 1.8% for a while, and Nvidia closed up 1.6% after falling 1.8%. Apple rose six times in a row, creating the longest continuous rise cycle in a month. The deepest decline in the China General Index was more than 2%, and Tencent's ADR fell by more than 3% after falling nearly 6%.

US dollar and two-year US Treasury yields rose, and 10-year US Treasury yields fell for four consecutive days. The euro hit a high during the year. The decline in British inflation weighed down on the pound, the yen fell, and the offshore renminbi rose for two consecutive days. Bitcoin fell more than 2% to $0.059 million.

The unexpected increase in EIA oil reserves caused US oil to fall below $77 and close to 2%. It also fell two days in a row with gold and erased gains since Monday, leaving oil below $80. Spot gold fell as deep as 1%. Singapore iron ore futures once fell to their lowest level since May 2023.

During the Asian session, A-shares collectively declined, trading below 500 billion yuan for three consecutive days. Black stocks suffered a severe setback, and treasury bonds surged for the second day in a row.

Key news

The US CPI in July was basically in line with expectations. The year-on-year increase narrowed to 2.9%. The core CPI growth rate hit a new low of more than three years, but rental inflation stopped declining. “New Federal Reserve News Agency”: The path to cutting interest rates in September has been paved, and the focus will shift to whether the decision to cut interest rates is consistent and the extent of interest rate cuts. Traders are betting on cutting interest rates by 25 basis points in September.

Tencent's Q2 revenue increased 8% year over year, non-IFRS operating profit increased 27% year over year, and local games resumed growth. Conference call: Demand for AI in China is growing rapidly. It is currently in negotiations with Apple over iOS mini game revenue, and plans to release the mobile version of the “Fearless Contract”.

Hon Hai: Demand for AI servers continues to be strong, and Nvidia GB200 servers were shipped as scheduled in the fourth quarter. Damo distributes “reassurance pills”: Nvidia is fine, Blackwell's chip delivery schedule for the fourth quarter remains unchanged.

The former head of Apple's automotive business led the development of desktop household robots. Apple bowed to regulation, opened NFC payments for the first time in history, and no longer sticks to iPhone click payments.

Agency 13F: Qiaoshui cut Apple's holdings by about 75% in the second quarter, reduced Nvidia's holdings, and significantly increased Amazon and Microsoft holdings. Buffett's Berkshire Apple holdings were cut in half in the second quarter, cleared Snowflake, and increased its holdings of Occidental Petroleum. The world's largest sovereign fund: reduced holdings of Novo Nordisk, Meta, and ASML, and increased positions in energy stocks. Subprime Mortgage's “Big Short” stock holdings were unexpectedly cut in half in the second quarter, increasing Alibaba's holdings to the largest stock. Gao Lin HLR increased its holdings of Alibaba significantly in the second quarter. Pinduoduo is still the largest stock, increasing its holdings of Nvidia.

There was a huge shock in Japanese politics, and Prime Minister Fumio Kishida announced that he would no longer run for election. Fumio Kishida “is about to step down,” and Japanese stocks turned higher after diving. Nikkei 225 closed up 0.46%, and the yen fluctuated sideways.

Market Closing Report

US stocks: The Dow rose 0.61%, the S&P 500 index rose 0.38%, and the NASDAQ rose 0.03%.

European stocks: The European STOXX 600 Index closed up 0.49%. The DAX 30 Index closed up 0.41%. France's CAC 40 closed up 0.79%. The UK FTSE 100 closed up 0.56%.

A-shares: The Shanghai Index fell 0.6%, the Shenzhen Index fell 1.17%, and the GEM Index fell 1.42%.

Bond market: The yield on the US 10-year benchmark treasury bond fell 1.32 basis points to 3.8295%. The two-year US Treasury yield rose 2.43 basis points to 3.9537%.

Commodities: WTI crude oil futures for September closed down $1.37, or 1.75%, to $76.98 per barrel. Brent crude oil futures for October closed down $0.93, down 1.15% to $79.76 per barrel. COMEX gold futures fell 0.86% to $2486.50 per ounce. COMEX silver futures fell 1.02% to $27.625 per ounce. Most of London's base metals closed higher, with an increase of less than 1%.

News details

Global heavyweight

The US CPI in July was basically in line with expectations. The year-on-year increase narrowed to 2.9%, and the core CPI growth rate hit a new low of more than three years. It is worth noting, however, that rental inflation is beginning to stop declining.

• The “New Federal Reserve News Agency” said that the path to cutting interest rates in September has been paved, and the focus will shift to whether the decision to cut interest rates is consistent, and whether to cut interest rates by 25 basis points or 50 basis points. Moderate inflation data may make it more likely that interest rates will be cut three times this year.

• Wall Street analysts believe that the July CPI data may further pave the way for the Fed to cut interest rates by 25 basis points in September. Next, the Fed will focus its attention on the labor market. If employment weakens, a larger 50 basis point interest rate cut may be needed. Housing inflation is heating up, but it has not hindered the general trend of interest rate cuts. Traders are betting on cutting interest rates by 25 basis points in September.

Tencent's Q2 revenue increased 8% year over year, non-IFRS operating profit increased 27% year over year, and local games resumed growth; conference call: Demand for AI in China is growing rapidly, and negotiations are underway with Apple on iOS mini game revenue, and plans to release the mobile version of the “Fearless Contract”

• Tencent's domestic and international game business both achieved 9% growth in the second quarter. The online advertising business remained steady, and revenue increased 19% year over year in the second quarter. Tencent said it would continue to increase investment in AI in the second half of the year, and announced that it had repurchased 0.155 billion shares in the first half of the year.

• Tencent pointed out that the “Dungeons and Warriors” mobile game and the “League of Legends” mobile game are the main driving forces driving the recovery of domestic game sales, while the “PlayerUnknown's Battlegrounds” mobile game has helped accelerate the growth of international game sales. The company plans to shift its business portfolio to higher-margin fields such as fintech and gaming, and increase investment in AI technology to drive business growth and improve profit margin efficiency. Meanwhile, Tencent is in discussions with Apple on revenue sharing for iOS mini-games. Also, Tencent has not announced any additional share repurchase plans.

Hon Hai: Demand for AI servers continues to be strong, and Nvidia GB200 servers were shipped as scheduled in the fourth quarter; Damo distributed “reassurance pills”: Nvidia is fine, and the Blackwell chip delivery schedule remains unchanged in the fourth quarter.

• Hon Hai Group's AI server revenue in the second quarter was over 60% month-on-month. As the iPhone 16 enters the peak production season, Hon Hai expects operations to gradually heat up next quarter. Wu Junyi, a spokesman for Hon Hai Group, said, “I believe AI servers can soon become Hon Hai's next trillion yuan revenue product. The development of GB200 cabinets (servers equipped with Nvidia GB200 processors) is progressing according to schedule. Hon Hai must be the first supplier to deliver, and it is expected that shipments will begin in the fourth quarter.”

• Damo expects that in the fourth quarter of 2024, there will be no change in Nvidia's delivery plans for Blackwell GPUs and related server components. The introduction of the GB200 server rack system may be delayed by about 1-2 months to November, and mass shipments will begin in the first quarter of 2025.

The former head of Apple's automotive business led the development of desktop household robots. According to the media, the desktop home device developed by Apple integrates an iPad-like display and robotic arm. The related project has officially accelerated in recent months after being approved in 2022. It is planned to be released as early as 2026, and the price is expected to be around 1,000 US dollars. After abandoning car construction, Apple is looking for new growth opportunities and entering the robotics field as an effort by Apple to increase sales and monetize Apple Intelligence.

Apple bowed to regulation, opened NFC payments for the first time in history, and no longer sticks to iPhone click payments. Starting with iOS 18.1, developers have the opportunity to provide NFC contactless transactions within their own apps, and users can set the app as default support. This means that Apple will begin to allow third parties to use iPhone payment chips to process transactions, which is equivalent to allowing banks and other service providers to compete with Apple Pay.

Institutional 13F holdings

• Qiaoshui slashed Apple's holdings in the second quarter and reduced Nvidia's holdings. According to the 13F document, Qiaoshui Fund reduced its holdings of Nvidia 0.489 million shares, Google 0.828 million shares, and Pinduoduo 0.289 million shares in the second quarter; it significantly increased its holdings of Amazon 1.59 million shares and Microsoft 0.51 million shares, by 152% and 88%, respectively. Qiaoshui also sold nearly 75% of its Apple holdings to 0.469 million shares. By the end of the second quarter, the total market value of Qiaoshui's US stock holdings was 19.2 billion US dollars, a decrease of 0.6 billion US dollars from the previous month.

• Buffett's Berkshire Apple holdings were cut in half in the second quarter, cleared Snowflake, and increased its holdings of Occidental Petroleum. In the second quarter, Berkshire reduced its holdings of the largest stock, Apple by nearly 0.39 billion, with a market value of 82 billion US dollars; cleared Snowflake 6.12 million shares, 0.84 billion US dollars; the fifth-largest stock, Chevron reduced its holdings by 4.37 million shares and 0.68 billion US dollars; the biggest increase in holdings was Occidental Petroleum, the sixth largest stock, which increased its holdings by 7.26 million shares and nearly 0.46 billion US dollars, far exceeding the 4.3 billion increase in the first quarter Million shares, followed by Adachi Insurance, increased its holdings by more than 1.1 million shares; new beauty company Ulta Beauty 0.69 million shares.

• The world's largest sovereign fund: reduced holdings of Novo Nordisk, Meta, and ASML, and increased positions in energy stocks. Driven by technology stocks, the Norwegian sovereign wealth fund achieved a return of 8.6% in the first half of the year. However, the fund is reducing its holdings in technology stocks, which have brought significant returns, and switching to energy stocks.

• Subprime Mortgage's “Big Short” stock holdings were unexpectedly cut in half in the second quarter, increasing Alibaba's holdings to the largest stock. Michael Burry, whose investment company Scion once discouraged Wall Street, reported that it increased its holdings of Alibaba by 0.03 million shares in the second quarter, and the value of its holdings increased from 9 million US dollars in the first quarter to 11.2 million US dollars. Scion also increased its Baidu holdings by 0.03 million in the second quarter, with a shareholding value of 6.5 million US dollars at the end of June. Following the company's clearance of popular US stocks in the first quarter, its US stock holdings declined sharply in the second quarter.

• Gao Lin HLR increased its holdings of Alibaba significantly in the second quarter. Pinduoduo is still the largest stock, increasing its holdings of Nvidia.

There was a huge shock in Japanese politics. Prime Minister Fumio Kishida announced that he would no longer run for election; Fumio Kishida “will step down soon,” and Japanese stocks turned higher after diving. Nikkei 225 closed up 0.46%, and the yen fluctuated sideways

• Currently, the Japanese political scene has actually formed a “three-headed government” situation where Fumio Kishida, Taro Aso, and Toshimitsu Mogi stand on three legs. If Toshimitsu Motegi directly challenges Fumio Kishida's position as president, then Taro Aso's attitude as vice president of the Liberal Democratic Party will be critical.

• What does Fumio Kishida's withdrawal mean for the Japanese economy? Analysts believe that Kishida's withdrawal from the election may mean a contraction in the fiscal and monetary environment and pave the way for further interest rate hikes by the Bank of Japan. Risk assets may suffer a severe setback, which will benefit the bond market.

Domestic macro

Insurance has sold dividend stocks 11 times during the year, and the third round of listing has arrived. Since 2023, it has become the norm for insurance capital to be listed. It is widely believed that in the history of A-shares, the insurance industry has experienced two rounds of peak listing:

The first time was in 2015, when the central bank continuously lowered interest rates and the Insurance Regulatory Commission lifted the minimum guaranteed interest rate limit for Universal Insurance. In order to increase the size of premiums, small and medium-sized insurers raised the guaranteed yield of Universal Insurance from 2.5% to 5-8%.

The second “wave of listing” occurred in 2020, driven by listed insurers such as “China Life Insurance” and “Taibao”, which placed more emphasis on the growth of being tendered.

“Financial Times”, the media in charge of the Central Bank of China: Recently, some institutions in the bond market have experienced phenomena such as prices clearly deviating from market levels. Resolutely crack down on illegal acts that disrupt market order in the bond market. The regulation and development of the bond market promote each other and are not contradictory. Better, sustainable and steady development can be achieved in regulation.

Credit growth was negative under social finance. The last time there was negative growth was in July 2005. Hongta Securities believes that there may be the following reasons for the slump in financing demand: First, the demand for additional financing by enterprises and the residential sector is weak, and they are still busy repaying loans. Second, financial institutions have increased the vitality of their existing funds. Due to changes in financial value-added assessment methods and “anti-idle transfer” requirements, banks' acts of inflating loans have been strictly investigated, and financial data has been further falsified and preserved.

Monarch Macro: The transmission of “downsizing” between private sectors is accelerating. Guojun Macro expects the net financing of government bonds in August to be about 1.25 trillion yuan, an increase of about 70 billion yuan over the previous year, and support for social finance will clearly weaken. Analysts believe that due to the weakening consumption momentum of highly indebted groups, companies are also beginning to use new and old to repair their balance sheets. In the future, attention should be paid to further strengthening the transmission of downsizing between private sectors.

Domestic companies

The tallest building in the Hangzhou CBD can't stay in Xiang Tai. At the end of April 2023, Xiang Huaqiang and Xiang Tai and their entourage brought designers to rent a 2,000-square-meter office on the first floor of Hangzhou's Binjiang “Smart Gate”, but after only one year, Xiang Tai returned the rent. E-commerce in Hangzhou as a whole is declining. Some e-commerce companies have either disappeared or been consolidated and merged, and the repeated decline in office rents has not attracted people.

Overseas macro

Market pricing The probability of a US recession is rising. Goldman Sachs: 41%, J.P. Morgan Chase: 31%. Although the stock market signals that the possibility of a recession is only 20%, if the next economic data continues to weaken, the stock and credit markets may fall sharply to synchronize with the bond market.

The US property market first “cut interest rates,” mortgage interest rates hit a new low in more than a year, and refinancing loan applications surged. However, current US buyers are still showing caution. The share of refinancing loan applications has risen, but new home purchase loans are relatively weak. New mortgage loan applications for home purchases increased by only 2.8% last week, far less than the close to 35% of refinancing.

The Ukrainian military claimed control over a large area of Russian territory, and Russia vowed to respond resolutely. Foreign media speculated how long the Ukrainian military's cross-border attack could last. The top commander of the Ukrainian army said that his troops had occupied about 1,000 square kilometers of land in Russia's Kursk region. On the same day, Russian President Vladimir Putin vowed to “resolutely respond” to the attack by the Ukrainian army and ordered his army to “drive the enemy out of our territory.” He also said that the reason Ukraine is carrying out armed provocation in the Russian border region is to strengthen its position in future negotiations. But there is no point in engaging with a regime that attacks civilians and civilian facilities.

The UK inflation rate accelerated for the first time this year, but the CPI was still below expectations, and the service sector cooled down. Traders are betting that interest rates will be cut at least once this year, and lower price pressure may pave the way for more interest rate cuts. However, the market expects that at the next meeting on September 19, there is only a 30% chance of successive interest rate cuts.

The South Korean government has introduced several policies to boost the local stock market, and South Korean retail investors still love to buy US stocks. So far this year, Korean retail investors have bought about 9 billion US dollars of US stocks and sold about 11.9 billion US dollars of Korean stocks during the same period, setting a new record. In order to stimulate the economy and boost the stock market, the South Korean government announced a series of tax relief measures to be discussed this year, but Korean retail investors are not paying for it.

The Bank of New Zealand unexpectedly cut interest rates for the first time in four years. The Bank of New Zealand cut interest rates from 5.5% to 5.25%, the first time since March 2020.

Overseas companies

Driven by AI demand, Cisco's guidance for the new fiscal year was better than expected, cutting 7% of global employees, and once jumped more than 6% after the market.

Retail supermergers and acquisitions: Mars buys Pringles potato chip maker for nearly $30 billion. After Mars acquires Kellanova, it will further expand into the field of chips and cookies. Currently, consumers are increasingly choosing fewer meals and more snacks, which will allow it to occupy a larger share of the market.

UBS reported second-quarter profit of $1.14 billion, which surpassed expectations, and progress was made in cost reduction and consolidation efforts.

Industry/Concept

1. Gaming | According to the Securities Times, on August 14, Tencent Holdings announced the results for the second quarter of 2024. Ma Huateng, chairman of the board of directors and CEO of the company, said in the financial report that thanks to the increase in user participation of various Evergreen games and the successful release of various new games, local and overseas game revenue increased in the second quarter. Financial reports show that in the second quarter of this year, Tencent Gaming's revenue in both domestic and international markets increased 9% year on year; “Wang Zhe Rongyao” and “Peace Elite” continued their recovery momentum, and sales resumed year-on-year growth in the second quarter.

Comment: Media reports indicate that since the first quarter, the growth rate of leading games such as Wang Zhe Rongyao, Peace Elite, and League of Legends mobile games has picked up. After the commercialization mechanism/gameplay of Supercell's “Wild Battle” was adjusted, sales returned to a growing trend. Reservations for the new game “SquadBusters” have been well received, and it is expected to drive Supercell to start a new round of growth after starting operation at the end of May. “Need for Speed: Assembly” is expected to go live this summer. Currently, the version review cycle has returned to normal, and reserve projects are expected to gradually release commercial value. Since 2Q23, Tencent's adjustments to the pace of commercialization of Wangzhe/Peace Games have returned to normal. There has been a negative impact under financial accounting rules, and Wangzhe Rongyao Douyin live streaming will be fully launched in January, which is expected to attract users within the Douyin ecosystem to return to Wang Zhe Rongyao and continue the game's life cycle. Tianfeng Securities anticipates that Tencent's gaming business revenue will accelerate sequentially for several consecutive quarters, driving the market's profit growth expectations and risk appetite to continue to increase.

2. Gallium nitride | TrendForce's latest report shows that as Infineon and Texas Instruments pour more resources into GaN (gallium nitride) technology, the development of the power GaN industry will once again accelerate.

Comment: The Securities Times points out that consumer electronics is the main battleground of the GaN power industry, and is rapidly expanding from fast chargers to the fields of home appliances, smartphones, etc. Next, GaN will enter the power supply for laptops and home appliances with more stringent reliability requirements. AI servers are expected to account for 12.2% of total server shipments in 2024, an increase of about 3.4% over 2023, while general server shipments increased by only 1.9% year on year. In order to cope with higher-end AI computing, the energy efficiency and power density of server power supplies must be further improved, and GaN has become one of the key solution technologies. In order to obtain gallium nitride devices with better performance and seize market share, major manufacturers are seeking technological breakthroughs in vertical structures and improving integration. With the further improvement of the performance and cost performance ratio of silicon nitride power devices, they will have great potential for development in high, medium, and low voltage scenarios in the future, and we are optimistic about their development in automotive electrical systems, large-scale integrated circuits, and wireless communication.

3. Environmental protection | According to China Securities News, the Ministry of Natural Resources held a special press conference on ecological protection and restoration on August 14. At the meeting, Wang Lei, director of the Ecological Restoration Department of the Ministry of Natural Resources, explained that the Ministry of Natural Resources, together with the National Development and Reform Commission, the Ministry of Finance, and the State Forestry and Grass Administration, recently jointly issued “Opinions on Further Promoting Ecological Protection and Restoration in the New Era”. The “Opinion” clarifies the general requirements for ecological protection and restoration work in the coming period, and emphasizes the full implementation of the territorial spatial plan, the delineation results in accordance with the “three zones and three lines”, improving the control system for the use of natural ecological space, strengthening the implementation and management of the red line of ecological protection, and strict protection of natural ecological space on land and sea. All regions are required to promote the implementation and management of ecological restoration plans and establish a national and regional ecological safety pattern and a scientific and reasonable urban and rural ecological pattern.

Comment: Media reports point out that with the transformation of China's economy from rapid development to high-quality development, the construction of ecological civilization has become an important theme in the country's development. According to the “2023 China Natural Resources Bulletin” issued by the Ministry of Natural Resources, as of the end of 2023, China encouraged and supported social capital to participate in ecological protection and restoration policy financial investment totaling 350 billion yuan. As the country continues to pay attention to the ecological environment, various favorable policies have been introduced frequently. With strong support from policies, the ecological restoration market capacity has been further expanded, driving the rapid development of enterprises in the industry.

4. Starflash | According to China Securities News, the International Star Flash Alliance announced that it has begun recruiting participating manufacturers for the “Starlight Alliance Connectivity Special Test”. According to reports, connectivity testing is an important test to ensure that Starflash devices from different manufacturers can interoperate and provide consistent performance. According to the regulations of the StarFlash Alliance, all Starflash listed products must pass the interconnection test. Although Starlight mainly carries rapidly developing new applications such as smart cars, smart homes, smart terminals, and intelligent manufacturing, there is no interoperability between different brands, which affects the user experience to a certain extent. To overcome this challenge, the StarFlash Alliance continues to push for technical compatibility improvements.

Comment: According to media reports, “Starlight Near Link” is a new generation of short-range wireless connectivity technology native to China, dedicated to short-range communication technology innovation and industrial ecology. It has six leading technical capabilities of low latency, high throughput, high concurrency, high reliability, anti-interference, and precise positioning, which solves the need for Wi-Fi and Bluetooth to meet the ultimate experience requirements such as latency and reliability in some segments of smart terminals and smart homes. As an international next-generation short-range wireless communication technology, Starlight Near Link is forming a “trifecta” trend with Bluetooth and Wi-Fi. The intergenerational evolution of Starflash technology route design is flexible and forward-looking. The Starlight standard will redefine a new generation of short-range wireless communication systems. It has broad application scenarios in the “human-car-home-garden” scenario, and has huge market potential for the industry and consumer sectors.

5. Gold | According to the Shanghai Securities Report, after adjustments in the previous few days, COMEX gold prices have once again entered an upward trajectory. As of 8 p.m. on August 14, Beijing time, it was reported at 2513.8 US dollars per ounce, close to the all-time high of 2522.5 US dollars set at the beginning of this month.

Comment: Wells Fargo Fund said that after reviewing the 5 US Federal Reserve interest rate cut cycles since 1990, the price of specialty gold has risen in the 4 interest rate cut cycles, the highest of which has risen by nearly 30%. With the start of the Fed's interest rate cut cycle this time, a new round of gold prices may be starting. Bosch Fund believes that current external market fluctuations will inevitably bring turmoil in the short term. However, liquidity easing brought about by more definite interest rate cut expectations will help support the performance of major asset classes, including gold.

6. Brain Science | The Brain-Computer Interface Industry Alliance under the China Academy of Information and Communication Technology released news. Xi'an Zhentai Intelligent Technology Co., Ltd. and the Shaanxi Medical Device Inspection Institute and the China Academy of Information and Communication Technology are leading industry units to draft a group standard for the “Wearable Brain-Computer Interface Special EEG Collection and Analysis System”, which has now been released for comments. The standard is conducive to standardization and generalization of the design and development of EEG information collection platforms in the field of brain-computer interfaces, and to promote high-quality development of the brain-computer interface industry.

Comment: CITIC Securities believes that all countries around the world attach great importance to the development of brain science and provide long-term project and financial support. Key brain-computer interface technology and hardware equipment go hand in hand to promote BCI systems from laboratories to market-based applications. Brain-computer interface financing continues to be a hot topic in overseas, and clinical trials are attracting attention. As brain-computer interface products entered the clinical trial period, investment institutions began to focus on companies that have achieved technological breakthroughs and entered clinical trials.

Today's news preview

The National Bureau of Statistics published monthly reports on residential sales prices in 70 large and medium-sized cities.

China's July unemployment rate for retail social consumer goods, industrial value added above scale, real estate development investment, fixed asset investment, and urban survey.

The State Information Office held a press conference on the operation of the national economy.

The 401 billion yuan 1-year medium-term loan facility (MLF) expires, so focus on MLF renewal.

The number of people applying for unemployment benefits in the US for the first time last week.

US retail sales in July.

Net long-term capital inflows to the US in June.

St. Louis Federal Reserve Chairman's speech.

Japan's GDP for the second quarter.

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