Fed Cuts Rates in Sept; China's Offices Boost, US-Listed Chinese Stocks Soar, Global Central Bank Meeting

I. Pre-market News

Macro:

The General Office of the CPC Central Committee and the General Office of the State Council issued the "Opinions on Improving the Market Access System." The opinions propose to improve the management model of the negative list for market access; scientifically determine market access rules, open access to fully competitive fields, and strengthen regulatory oversight of financial industry access; reasonably set market entry prohibitions and licensing access items; enhance the coordination and linkage of domestic and foreign investment access policies; orderly relax access restrictions in the service industry; optimize the market access environment for new business forms and fields; and increase the intensity of pilot efforts to relax market access. Hot

The National Financial Regulatory Administration stated that commercial banks have approved 5,392 "white list" projects, with approved financing amounts nearing 1.4 trillion yuan. To ensure the delivery of housing, coordination mechanisms in various cities are comprehensively understanding the information of under-construction, sold, and undelivered real estate projects in their respective locations. For projects that need financing support through the "white list" but have not yet met the "white list" conditions and standards, the urban coordination mechanism urges banks to propose targeted suggestions and opinions, real estate companies to take measures to repair problematic projects as soon as possible, and city governments to strengthen coordination to promote the inclusion of projects that meet the "white list" conditions and standards.

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The U.S. Bureau of Labor Statistics: Preliminary estimates of the annual benchmark revision show that the total number of non-farm employees in the United States in March 2024 was revised down by 818,000 people, a revision of 0.5%.

The minutes of the Federal Reserve's July meeting released that day showed that Federal Reserve officials were strongly inclined to cut interest rates at the September policy meeting last month, with several officials even willing to cut rates immediately. The minutes indicated that the vast majority of policymakers believed that easing policy at the next meeting might be appropriate if economic data continue to align with expectations. Currently, the market widely expects the Federal Reserve to cut interest rates next month, and by the end of this year, it may cut rates by 100 basis points. Hot

The Federal Reserve's meeting minutes boosted expectations for rate cuts, and the three major U.S. stock indexes closed higher collectively, with the Dow Jones Industrial Average up 0.13%, the Nasdaq up 0.57%, and the S&P 500 up 0.42%. Popular Chinese concept stocks generally rose, with the NASDAQ Golden Dragon China Index up 2.39%. Hot

International oil prices fell across the board, with the U.S. October contract down 1.68%, at $71.94 per barrel. The Brent October contract fell 1.41%, at $76.11 per barrel. International precious metal futures closed mixed, with COMEX gold futures down 0.02% at $2,550.2 per ounce, and COMEX silver futures up 0.38% at $29.63 per ounce.

Industry:

As of 22:10 Beijing time on the 21st, the number of online players of "Black Myth: Wukong" on Steam reached nearly 2.36 million, once again breaking yesterday's record of 2.21 million online players. It currently ranks second in Steam's history.The National Development and Reform Commission and the National Energy Administration have issued the "Implementation Plan for Large-scale Equipment Updates in Key Energy Fields". The goal is to achieve a more than 25% increase in equipment investment scale in key energy fields by 2027 compared to 2023. The plan focuses on promoting the implementation of energy-saving, heating, and flexibility "three-in-one" upgrades for coal-fired power units, as well as equipment updates and technological transformations in the fields of power transmission and distribution, wind power, photovoltaics, and hydropower.

Companies:

Zhejiang Publishing United Group announced that the company is only the publisher of the game "Black Myth: Wukong", providing services such as game content review, publication declaration, and application for publication numbers, and does not participate in the game's revenue sharing.

JD.com announced in the Hong Kong Stock Exchange that on August 21, 2024, it spent approximately $390 million to repurchase its shares and has fully utilized the repurchase limit of the $3 billion share repurchase plan approved in March 2024.

II. Outlook

8.22-Jackson Hole Global Central Bank Annual Meeting (8.22-8.24), preliminary value of US August S&P Global Services PMI, preliminary value of US August S&P Global Manufacturing PMI, number of initial jobless claims in the US for the week ending August 17.

8.23-Federal Reserve Chairman Powell will deliver a speech on the economic outlook at the Jackson Hole Annual Meeting.

III. Public Opinion Hotspots

Gaming-On August 20, the domestic game "Black Myth: Wukong" broke through 2 million online players on the Steam platform, ranking first; it ranks second in the historical peak of online players for all games on Steam.

AI Computing Power-Foxconn expects a significant increase in revenue in the third quarter compared to the same period last year and the previous quarter, and states that it will begin shipping servers equipped with Nvidia GB200 processors in the fourth quarter. Nvidia's bottom rebound exceeds 20%, and it will release its financial report on August 28.High-speed Rail and Metro - China State Railway Group Corporation has already conducted two tenders for the fifth-level repair this year, totaling 509 sets, surpassing the historical peak number of high-speed train sets tendered (467 sets in 2015).

Nuclear Power - State Council: Decided to approve five nuclear power projects, including the Xuwei Phase I project in Jiangsu.

Robotics - The 2024 World Robot Conference will be held on August 21st, and the number of humanoid robots on display may set a new record for past events; Fast Technology reported on August 20th that Tesla is recruiting training staff for the "Optimus" humanoid robot.

IV. Hotspot Research Reports and Minutes

1. [Seller's Viewpoint] Nvidia is on the verge of a new high, and it's the right time for optical module configuration! - 20240820

Nvidia's product shipment pace is gradually becoming clear, and the stock price has rebounded for several consecutive days: Foxconn has confirmed that the B-series chips will be shipped in 24Q4, which is better than previously expected. Recently, Nvidia's additional order of 800G optical modules may be related to the additional order of H-series chips, with minimal impact on the performance rhythm of the industry chain; the adjustment of computing power in A-shares is largely constrained by the capital market and the adjustment of US stocks AI, and has nothing to do with the fundamentals. As US stocks gradually recover and sentiment stabilizes, the recent large price increase is a good time for configuration; the profit expectation for optical modules next year corresponds to the historical valuation bottom, and computing power is expected to rebound. Our team continues to strongly call at the bottom, emphasizing that there is no sign of slowing down in the industry trend:

The arms race of large models continues or even accelerates: Considering the significant threat of large models to the traditional business of large factories, the strategic importance of continuous capital expenditure far exceeds cloud computing. The current gap between large models and AGI is significant, and the levels of models among large factories are comparable. There is no possibility of stopping the arms race, and the market may underestimate the determination and patience of AI investment. Open AI faces competitive pressure from external models such as Claude 3.5 Gemini 1.5 Pro, and under financing pressure, it is expected to release GPT5 information as soon as possible, and significant catalysts can be expected.

Scaling-laws continue to be effective, and computing power is still the answer: Scaling Laws continue to be effective. Recently, the CEO of Anthropic and the CEO of META have mentioned that the training cost of the next generation of large models needs to be increased by an order of magnitude, and computing power is still the ultimate answer. As the number of interconnected GPUs increases from tens of thousands to hundreds of thousands, and potentially millions in the future, the sustainability of optical module demand may exceed expectations. #Recently, a major North American customer has sent optimistic signals for the demand in # 26 years!

The prospects for AI applications are optimistic: Currently, applications continue to increase, and IBM's financial report on enterprise-level AI business exceeded expectations, and the demand on the TO B end is real. TSMC's financial report also mentioned the authenticity of AI demand. The core contradiction for the further explosion of current applications is that the performance of large models is still not enough. With the continuous iteration of large models and the reduction of computing power costs brought by hardware upgrades, time is on the side of optimists.

Continue to focus on: New Easy Sheng, Zhongji Xu Chuang, Tianfu Communication, Ding Tong Technology, Wolnuclear Materials, etc.2. 【Guojin Electricity New & Automobile】 Lithium Battery Sector Tracking Review: August Production Revision Upward, Leading Companies Demonstrate Differentiated Competitive Advantages, Highlighting the Recommendation of CATL!

【Event】

In August, the overall production plan of the lithium battery industry chain increased month-on-month compared to expectations. The production plans for batteries, positive electrodes, negative electrodes, separators, and electrolytes in August are expected to increase month-on-month (initial expectations at the beginning of the month) by +5.7% (-0.2%), +5.3% (+2.1%), +2.6% (+0.7%), +1.8% (+0.9%), and +5.0% (flat), respectively. The main reason for the upward revision of production plans compared to expectations is the strong demand driven by the energy storage segment, corresponding to the demand at the end of the year.

【Opinion】

• August Production & Inventory: Sector production revision upward, CATL inventory healthy.

Production: The sector's prosperity is on the rise, with increased orders due to energy storage demand. The production plan for the lithium battery sector in August increased compared to the beginning of the month, mainly due to the increase in energy storage demand and the recovery of downstream demand.

Inventory: CATL's inventory level is far below the industry average. We have tracked and calculated the cumulative inventory level of the sector, with the current electric vehicle/battery/CATL inventory at 2-3/4-5/2-3 months, respectively. Among them, electric vehicles de-stocked in Q2 to the current reasonable level, and battery inventory is relatively high (normally at 2-3 months, Q2 electric vehicle de-stocking led to a decline in the industry's total volume, and the cumulative inventory/production coefficient increased). CATL had a slight inventory accumulation in July (in preparation for energy storage) and currently still maintains a level of nearly 2 months, which is far below the industry average.

• The rise of domestic market share, optimistic about lithium battery leaders. From January to June, according to SNE statistics, among the top ten global battery manufacturers, the share of four Japanese and Korean companies declined by 5-6 percentage points (a total of 27%), while the share of six domestic companies increased by 3-4 percentage points (a total of 65%), with CATL's share in China and Europe steadily growing. Since the second half of 2023, the de-stocking by North American car manufacturers has put pressure on the utilization rate of Japanese and Korean battery manufacturers, coupled with compensation, recall, and other events, under the IRA subsidy, Q2 still resulted in a gross loss (LG, SK on). Except for CATL, the battery sector's momentum has basically resulted in losses across the board, while CATL has maintained a stable gross profit of 0.18-0.19 yuan per Wh and a net profit of 0.09 yuan for eight consecutive quarters. Competitive advantages are highlighted.