Energy costs surge eroding corporate profits, high valuations and declining purchasing power pressuring gold, imported inflation weighing on A-shares with steepening debt market---0325 Macro Dehydration

Driven by geopolitical conflicts and multiple central bank interest rate meetings, global stock markets are entering a deep adjustment phase. The Bank of England, European Central Bank, Bank of Japan, and Federal Reserve all maintained interest rates, while the Reserve Bank of Australia unexpectedly raised rates by 25 basis points, suppressing the stock market. The Indian financial stock scandal also impacted confidence.

Since the recent Middle East conflict, gold has underperformed most risk assets. Its short-term trend heavily depends on the level of conflict tension. The pressure comes from previous valuation increases, high unrealized gains, and developing countries, which have been the main buyers of gold, facing reduced purchasing power due to rising costs and currency depreciation, possibly even selling off marginally.

Currently, the domestic economy faces import-driven inflation risks. The non-ferrous metal industry chain contributes 113% to the PPI cumulative increase. The transmission of commodity price increases to upstream raw materials is relatively smooth, but the transmission to downstream retail mainly depends on terminal demand strength. Therefore, A-shares are under short-term pressure, and the government bond yield curve is steepening.