According to the China CITIC Construction Investment Research Report, the US Treasury's large-scale issuance of bonds will continue to reduce net liquidity. This round of interest rate hikes will lead to a downward trend in the US credit cycle, which will drag down US stocks and expect the valuation of the Dow to continue to decline. In the short term, the escalation of the Palestinian-Israeli conflict in the Middle East has led to an increase in demand for safe haven gold. In the medium term, it is expected that the US unemployment rate will enter an upward channel, the Federal Reserve's interest rate hike will come to an end, and gold will enter a reverse upward trend, with a target price of $2000- $2200 at the end of the year. The escalation of the Israeli-Palestinian conflict is similar to the 1973 oil crisis, and it is expected that the fundamentals of the crude oil market will still be in short supply in the next six months. WTI oil prices may show a fluctuating upward trend, with a target price of $100 at the end of the year.
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CITIC Construction Investment | The situation in the Middle East is escalating, with a crude oil target of $100
The US Treasury has issued large-scale bonds, and net liquidity will continue to decrease. This round of interest rate hikes has led to a downward trend in the US credit cycle, which will drag down US stocks. It is expected that the valuation of the Dow Jones Industrial Average will continue to decline. In the short term, the escalation of the Palestinian-Israeli conflict in the Middle East has led to an increase in demand for safe haven gold. In the medium term, it is expected that the US unemployment rate will enter an upward channel, the Federal Reserve's interest rate hike will come to an end, and gold will enter a reverse upward trend, with a target price of $2000- $2200 at the end of the year. The escalation of the Israeli-Palestinian conflict is similar to the 1973 oil crisis, and it is expected that the fundamentals of the crude oil market will still be in short supply in the next six months. WTI oil prices may show a fluctuating upward trend, with a target price of $100 at the end of the year.
US stocks: US stock valuations continue to decline
In September, the outlook for the US manufacturing industry slightly rebounded but remained in a contraction range, while the outlook for the service industry declined. The unemployment rate remained at its highest level since March 2022, and wage growth slowed slightly, indicating that the tension in the labor market has been alleviated. The negative impact of recent rapid interest rate hikes on the economy will continue, and it is expected that the overall US economy will continue to explore below in the next quarter.
As of October 16, 2023, the P/E ratio of the Dow Jones Industrial Average was 20.27 times. The US Treasury has issued large-scale bonds, and net liquidity will continue to decrease. This round of interest rate hikes has led to a downward trend in the US credit cycle, which will drag down US stocks. It is expected that the valuation of the Dow Jones Industrial Average will continue to decline.
Gold: The situation in the Middle East is escalating, and gold is expected to reverse and rise
In the past month, gold has experienced a breakout and decline, mainly due to the tightening of global liquidity and a significant increase in the US dollar index and US bond interest rates. As of October 16, 2023, the spot price of gold was $1920.85 per ounce. In the short term, the escalation of the Israeli-Palestinian conflict in the Middle East has led to an increase in demand for safe haven gold, similar to the oil crisis of the 1970s. Behind such events is a significant increase in the downward trend and uncertainty of the US economic cycle. In the medium term, it is expected that the US unemployment rate will enter an upward channel, the Federal Reserve's interest rate hike will come to an end, and gold will enter a reverse upward trend, with a year-end target price of $2000- $2200.
Crude oil: escalation of Palestinian-Israeli conflict pushes up WTI's year-end target price by $100
In terms of demand, OPEC stated in its monthly crude oil market report that it is expected that the global crude oil demand growth rate will remain at 2.44 million barrels per day in 2023, and the global oil demand growth rate is expected to remain unchanged at 2.25 million barrels per day in 2024.
In terms of supply, the OPEC monthly report shows that OPEC's crude oil production in September was approximately 27.97 million barrels per day, an increase of 50000 barrels per day compared to August. US crude oil production increased to 12.9 million barrels per day; The US crude oil inventory in September decreased by 8.88 million barrels compared to August.
At the end of September, the WTI crude oil price reached our target price of $95. Despite the lack of obvious upward mobility on the demand side, the supply side of the conflict between Palestine and Israel escalated. Similar to the 1973 oil crisis, it is expected that the fundamentals of the crude oil market will still be in short supply in the next six months, and the WTI oil price may show a fluctuating upward trend, with a target price of $100 at the end of the year.
The results of this report are all based on the corresponding asset pricing models for major categories, and it is necessary to be vigilant about the risk of model failure; History does not represent the future, and we need to be vigilant against the risk that historical laws will no longer be repeated; The model results are only for research reference and do not constitute investment recommendations; The current conflicts in overseas regions have not yet ended, and there is still a need to be vigilant about the risk of large-scale escalation of conflicts in local areas; The US interest rate hike promotes the return of US dollar assets to the US. Currently, the US is still in the process of raising interest rates, and it is necessary to be vigilant against the risk of the Federal Reserve raising interest rates beyond expectations and long-term high US bond rates. Currently, the Chinese economy is heavily influenced by domestic and international factors, and it is still necessary to be vigilant about the risks posed by domestic economic growth falling short of expectations.