U.S. inflation has exploded again, and the market has begun to wait helplessly for the expected interest rate cut. The probability of a rate cut in June has fallen from about 50% two weeks ago to around 10%, and for the most part, a rate cut seems to be a luxury. The minutes of the Fed's meeting, released overnight, showed that the Fed may consider slowing down the process of reducing its balance sheet, which may be the only good news that the market can talk about.
For the market, a rate cut seems increasingly far away, and more importantly, even if it happens in June, it is difficult for the market to expect the next rate cut to happen on track. In other words, rate cuts in the current environment are a dynamic approach, not a traditional rule-based state.
A related question is whether the Fed will cut interest rates in an emergency manner if there is a sharp drop in US stocks, which is not an easy question to answer, but one thing is certain, a sharp decline in the stock market will bring about an increase in interest rate cut expectations, which will alleviate the market's concerns about high interest rates to some extent. In general, U.S. stocks need to wait, correct, or adjust while waiting.
Hong Kong stocks appeared to be very stable amid the volatility of the external market, and the Hang Seng Index retested and stood above the 17,000-point mark. Several key factors for Hong Kong stocks – Treasury yields, US-China relations, and China's economic performance – have all shown signs of stabilizing recently. Investors will of course ask, is it "stable" that US Treasury yields are rising? Our feeling is that it is a relatively common phenomenon for the market to accept and adapt to higher US Treasury interest rates, so the rise in interest rates is not an absolute surprise.
China's economic data has been exceeding expectations recently, and exports are expected to strengthen further with the "non-landing" of the U.S. economy. In any case, these positives have been overlooked before. Another phenomenon worth noting is that the correlation between Hong Kong stocks and US stocks seems to be weakening, and this "seesaw" effect means that related trading strategies may need to be taken seriously.
U.S. inflation has exploded again, and the market has begun to wait helplessly for the expected interest rate cut. The probability of a rate cut in June has fallen from about 50% two weeks ago to around 10%, and for the most part, a rate cut seems to be a luxury. The minutes of the Fed's meeting, released overnight, showed that the Fed may consider slowing down the process of reducing its balance sheet, which may be the only good news that the market can talk about.
Overall, the resilience of the U.S. economy and inflation has exceeded expectations, which has become a fact that the market cannot ignore. The relatively negative message for the market is that a rate cut seems to be getting more and more distant, and more importantly, even if it happens in June, it is difficult for the market to expect the next rate cut to happen on track. In other words, rate cuts in the current environment are a dynamic approach, not a traditional rule-based state.
01
U.S. stocks await volatility
The sharp drop in U.S. stocks overnight largely reflected concerns about high interest rates. In fact, uncertainty about monetary policy began to affect US stocks about a month ago. The Nasdaq, for example, has largely stagnated since March. The stock market began to hesitate, which means that the information that the market needs to digest is still relatively complex, and there is a high probability that market volatility will rise at this time. A related question is whether the Fed will cut interest rates in an emergency manner if there is a sharp drop in US stocks, which is not an easy question to answer, but one thing is certain, a sharp decline in the stock market will bring about an increase in interest rate cut expectations, which will alleviate the market's concerns about high interest rates to some extent. In general, U.S. stocks need to wait, correct, or adjust while waiting.
The US dollar has started to strengthen significantly with a sharp rise in US Treasury yields, which in part means that the yuan may test the last low. The recent start of some volatility in the renminbi may also be an early sign that the exchange rate is more resilient.
02
Hong Kong stocks stand on the top of 10,000
Hong Kong stocks appeared to be very stable amid the volatility of the external market, and the Hang Seng Index retested and stood above the 17,000-point mark. Several key factors for Hong Kong stocks – Treasury yields, US-China relations, and China's economic performance – have all shown signs of stabilizing recently. Investors will of course ask, is it "stable" that US Treasury yields are rising? Our feeling is that it is a relatively common phenomenon for the market to accept and adapt to higher US Treasury interest rates, so the rise in interest rates is not an absolute surprise. China's economic data has been exceeding expectations recently, and exports are expected to strengthen further with the "non-landing" of the U.S. economy. In any case, these positives have been overlooked before. Another phenomenon worth noting is that the correlation between Hong Kong stocks and US stocks seems to be weakening, and this "seesaw" effect means that related trading strategies may need to be taken seriously.