China Securities Co., Ltd: The Federal Reserve's interest rate cut window is not completely closed, focusing on three main points.

China Securities Co., Ltd. releases a research report stating that the recent macro environment is not favorable to the narrative of interest rate cuts, but the window for interest rate cuts has not completely closed. Pay attention to three logics: 1. Line of defense 1/ Time window June: If the US stock market and US bond market have a second bottom, it will accelerate negotiations between the US and Iran and the reopening of the Strait of Hormuz. Once oil prices fall, the premise of interest rate hikes may loosen. 2. Line of defense 2/ Time window Q3: How to interpret the employment data depends not on the data itself, but on inflation. As long as the core CPI remains stable, the hope of interest rate cuts will not be extinguished. 3. Line of defense 3/ Time window H2: Under K-shaped differentiation, if consumer spending continues to be weak, and the Fed's demand for employment is not satisfied with the stabilization of the unemployment rate but a more substantial decrease, interest rate cuts remain a potential option. The pricing trend for interest rate hikes is at its peak, and the direction for the second half of the year is more likely to be accommodative. In addition, the market is very sensitive to the narrative of interest rate hikes recently, not because there is a real intention to raise rates, but because the US stock market is at risk of being too high. Once the correction is completed, sentiments will ease, and the interest rate hike narrative will diminish. Events: The strong US non-farm payroll data in May has diminished expectations of interest rate cuts, leading to prevalent interest rate hike trades. Main points from China Securities Co., Ltd.: The non-farm payroll data sparked interest rate hike trades, leading to a significant decline in US stocks, bonds, and commodities on Friday. Looking ahead, is there still a chance for the repair of expectations for interest rate cuts? What barriers need to be overcome for interest rate hike trades to become the main trend in the second half of the year? Conclusion: Although the current macro environment is no longer favorable to the Fed's interest rate cuts, the window for interest rate cuts has not completely closed. Follow the three key logics: the reopening of the Strait of Hormuz, stable core CPI, and continued weak consumer data. The pricing trend for tightening is at its peak in the market, and the direction for the second half of the year is more likely to be accommodative. In addition, the recent sensitivity of the market to the interest rate hike narrative is due to the extreme position of the US stock market. Once the correction is complete, sentiments are expected to ease, and the interest rate hike narrative may diminish. Risk Warning: Inflation in the US exceeds expectations, the US economic growth exceeds expectations, leading to continued tightening of monetary policy by the Fed, significant appreciation of the US dollar, rising US bond yields, continued decline in US stocks, potential banking crises, and currency and debt crises in emerging markets. If the US economy falls into a recession beyond expectations, leading to a liquidity crisis in financial markets, the Fed is forced to shift to accommodative monetary policies. If the European energy crisis worsens beyond expectations, leading to a severe recession in the Eurozone, global markets face turmoil, shrinking external demand, and policy dilemmas. Escalation of global geopolitical risks, deterioration of US-China relations beyond expectations, uncontrollable factors affecting commodities and shipping, deepening of anti-globalization trends, continued disruption of supply chains, and exacerbation of resource competition.