Last week, the secondary market saw a shift to net inflows of traceable funds, with continued purchases by ETFs and a turnaround to net inflows from Northbound capital. The US CPI data came in lower than market expectations, and the Federal Reserve's dovish stance has increased expectations for interest rate cuts. Historically, once the US stock market enters an interest rate cut cycle, growth styles tend to outperform. By the fourth quarter of 2024 and the following year, the US economy and demand are expected to gradually transition to a quasi-recessionary period, with the US gradually moving towards an interest rate cut cycle. In the future, once the yield on US Treasuries accelerates downward, the high ROE and high FCF leading style will welcome its third wave of repair.

How does the shift in the Federal Reserve's monetary policy historically affect the style of the A-share market? Recently, the US CPI data has been lower than market expectations, and the Federal Reserve's dovish stance has continued to heat up market expectations for interest rate cuts. Historically, once the US stock market enters an interest rate cut cycle, growth styles tend to outperform, and there is a trend of switching from large-cap growth to small-cap growth, starting with the interest rate cut. Looking at specific industries, the TMT sector has a higher probability of gaining excess returns during the interest rate cut cycle. By the fourth quarter of 2024 and the following year, the US economy and demand are expected to gradually transition to a quasi-recessionary period, with the US gradually moving towards an interest rate cut cycle. In the future, once the yield on US Treasuries accelerates downward, the high ROE and high FCF leading style will welcome its third wave of repair.

Advertisement

Monetary policy and interest rates: Last week (7/8-7/12), the central bank's open market operations were balanced between injections and withdrawals, with 10 billion yuan in reverse repos and 103 billion yuan in MLF maturing in the coming week. Money market interest rates fell, short-end Treasury yields rose, long-end Treasury yields fell, the issuance scale of interbank certificates of deposit expanded, and issuance rates fluctuated. As of July 12, the R007 fell by 2.2 basis points, the DR007 fell by 0.4 basis points, the 1-year Treasury yield rose by 1.0 basis points, the 10-year Treasury yield fell by 1.5 basis points, the issuance scale of interbank certificates of deposit increased by 291.13 billion yuan, the rates for 3M/6M interbank certificates of deposit rose, and the rate for 1M interbank certificates of deposit fell.

Funds supply and demand: Traceable funds in the secondary market turned to net inflows. Northbound capital inflows amounted to 15.91 billion yuan; margin balance decreased, with net margin fund sales of 9.07 billion yuan; ETF net inflows were 9.45 billion yuan; the share of newly established equity-oriented public funds decreased. The scale of net reduction by important shareholders increased, while the scale of announced planned reductions decreased.

Market sentiment: Last week, the activity of margin fund trading increased, and the equity risk premium fell. The style index and major industry sectors that received relatively more attention last week were TMT, CSI 1000, and ChiNext Index. The VIX index fell, and the risk appetite in overseas markets improved.

Market preference: In terms of industry preference, electronics, public utilities, and transportation saw relatively high net inflows of various funds. In terms of track preference, Northbound capital inflows were mainly in special valuation, baijiu, and metaverse, while margin funds increased positions in information technology innovation, intelligent driving, and new types of power systems. Broad index ETFs were all net subscriptions, with the most subscriptions for the CSI 300 ETF; industry ETF subscriptions and redemptions were mixed, with more subscriptions for pharmaceutical ETFs and more redemptions for new energy & intelligent automobile ETFs. The highest net subscription was for the Harvest SSE STAR Market Chip ETF; the highest net redemption was for the ICBC China A50 ETF.

Overseas changes: The US CPI data was lower than market expectations, and the Federal Reserve's dovish stance has increased expectations for interest rate cuts. The US CPI in June rose by 3% year-on-year, lower than the market's expected 3.1%, falling to the lowest level since June last year; it fell by 0.1% month-on-month, lower than the expected rise of 0.1%, marking the first month-on-month decline since May 2020.

Risk warning: Economic data and policies may not meet expectations, and overseas policies may tighten more than expected.