Investment Rating - The report indicates a negative outlook for most industries, suggesting that many are not at the bottom of their cycles and face potential risks in the future [28][37]. Core Insights - The current state of excess capacity in the Chinese manufacturing sector remains largely unchanged, with five out of seven key industries still exhibiting overcapacity relative to global demand [17][19]. - A significant stimulus policy aimed at boosting domestic demand has temporarily alleviated some pressures, particularly in the tail end of the industry, but this is not indicative of a cyclical turning point [17][24]. - The "Three Principles" framework suggests that the bottoming out of cycles will be delayed, with negative cyclical risks anticipated in the near future [28][39]. Summary by Relevant Sections Industry Overview - The report focuses on seven key industries contributing to 25% of China's GDP growth and 7% of exports, including air conditioners, solar modules, lithium batteries, electric vehicles, power semiconductors, steel, and construction machinery [3][16]. - The analysis shows that while there has been some improvement in capacity utilization rates, the overall competitive landscape remains challenging, with many companies still operating at negative or zero cash margins [36][37]. Capacity and Demand Dynamics - The report highlights that the capacity utilization rates for the seven industries are projected to average around 63% in 2025, which is higher than the actual values for 2023-24 but still indicates potential for future declines [22][24]. - The stimulus measures have led to significant pre-purchase demand, particularly in the electric vehicle and air conditioning sectors, with estimates suggesting that these policies could drive demand significantly above baseline levels [24][26]. Industry-Specific Insights - The solar industry is noted to be closest to a turning point, while the electric vehicle sector is characterized by the weakest profitability and steepest cost curves, indicating a need for market consolidation [4][28]. - In contrast, leading manufacturers in the air conditioning, lithium battery, and construction machinery sectors maintain relative cost advantages, which may provide them with a more stable position in the market [4][19]. Future Outlook - The report concludes that while some industries may experience temporary relief from policy measures, the underlying structural issues and excess capacity will likely lead to continued challenges in achieving sustainable profitability [17][25]. - The anticipated demand recovery is seen as fragile, with potential risks associated with the tapering of stimulus measures in the coming years [28][39].

Investment Rating - The investment rating for Huadong Medicine Co. is Neutral, with a 12-month price target of Rmb41, indicating a potential upside of 1.5% from the current price of Rmb40.39 [7][11]. Core Insights - The company has shown slight growth in its business performance, particularly in innovative drugs and aesthetics, with expectations for improvement in H2 2025 driven by new product launches [2][6]. - Huadong Medicine anticipates additional revenue of Rmb1 billion from innovative drugs and new biosimilars in 2025, with hospital sales of ELAHERE and Arcalyst expected to start in Q3 2025 [6][7]. - The aesthetics segment is expected to launch new products such as MaiLi HA filler injection and V30 in H2 2025, aiming to support growth despite a weak consumption environment [6][7]. Summary by Sections Recent Business Performance - The company expects higher revenue growth from its manufacturing business and stable growth from aesthetics in Q2 2025 compared to Q1 2025, with optimism for H2 due to new product launches [2][6]. Innovative Drugs - Huadong Medicine plans to initiate hospital sales of ELAHERE and Arcalyst in Q3 2025, projecting an additional Rmb1 billion in revenue from innovative drugs and new biosimilars in 2025 [6][7]. - The company is cautious about the development of its oral GLP-1 asset (HDM1002) due to concerns over liver toxicity, although no adverse events have been observed in over 800 enrolled patients [6]. Aesthetics - The company aims to launch several new aesthetic products in China in H2 2025, including MaiLi HA filler injection and Preime DermaFacial, to drive growth in a challenging consumption environment [6][7]. Industrial Microbiology - Huadong Medicine is developing APIs for pharmaceutical and biotech companies, expecting sales ramp-up following the launch of these assets [10]. Policy Impact - The company is actively engaging with national healthcare insurance to include its innovative drugs in the National Reimbursement Drug List (NRDL) and anticipates limited impact from potential volume-based procurement (VBP) on certain products due to patent protections [10].

USA: Powell Reiterates Wait-and-See Approach to Policy, Does Not Comment on July Cut BOTTOM LINE: Chair Powell said the economy was "healthy overall" and that "as long as the US economy is in solid shape, we think the prudent thing to do is to wait and learn more, and see what [the tariffs'] effects might be." When asked about whether it was too soon for the Fed to start cutting in July, Powell said he "wouldn't take any meeting off the table or put it directly on the table." Powell said that the inflation ...

Investment Rating - The report maintains a positive investment stance on China's biotech and pharmaceutical sector, driven by the evolving domestic drug innovation policies and the strengthening home market [1][2]. Core Insights - China's National Healthcare Security Administration (NHSA) and National Health Commission (NHC) have introduced a new policy framework aimed at promoting drug innovation, particularly through a new category for commercial insurance innovative drugs [1][2]. - The new commercial insurance innovative drug list is designed to include drugs that demonstrate significant clinical benefits and exceed the coverage scope of basic medical insurance, with exemptions from certain existing restrictions [2][7]. - The report highlights the importance of the new policy in addressing the stagnation of basic medical insurance fund inflows, which could limit the capacity of China's single-payer system in the long run [1]. Summary by Sections Drug Policy Framework - The NHSA and NHC's new policy framework aims to establish a diversified healthcare social security system by 2030, facilitating drug innovation and addressing critical payor/access aspects [1]. - The introduction of the commercial insurance drug list is a significant step towards enhancing the ecosystem for drug innovation in China [1]. Innovative Drug List - The new category for innovative drugs will include those with highly differentiated innovation and significant clinical benefits, exempting them from certain restrictions on prescription drugs [2]. - Key aspects such as selection criteria for drugs and payment mechanisms for this category remain to be clarified [2]. R&D and Market Access - The framework encourages the provision of NHSA's national data for innovative drug R&D, which could be beneficial for pharmaceutical companies in China [3][7]. - Incremental financing is encouraged through dedicated funds from commercial insurance to invest in biotech startups, although further guidelines are awaited [7]. - The report notes that local hospitals are encouraged to expedite the decision-making process for drug formularies, particularly for innovative drugs [7].

Investment Rating - The report indicates a positive outlook for US equities, with expectations for net buying in various scenarios over the next month [2][5]. Core Insights - The report highlights that professional investors have driven equities higher, with macro investor optimism significantly influenced by Fed policy [80]. - Global equities experienced the largest net buying in five weeks, primarily driven by long buys and some short covering [38]. - The report notes that 6 out of 11 global sectors were net bought, with Financials, Info Tech, and Industrials leading, while Energy, Comm Svcs, and Real Estate saw the most net selling [40]. Summary by Relevant Sections CTA Corner - CTAs are long $67 billion in global equities, with a significant portion in the US, and are expected to shift from selling to buying in the coming month [2][5]. - In the past week, there was a net selling of $9.2 billion, but future estimates suggest a reversal in buying trends [2]. Market Flows - The report details expected flows in different market scenarios, indicating a potential for significant buying in flat and up scenarios over the next month [7]. - Notably, the S&P 500 E-mini is projected to see varied flows, with net buying expected in flat and up scenarios [7]. Sector Performance - The report indicates that the Financial sector saw the largest net buying since December 2016, driven by hedge funds [40]. - Energy stocks faced the largest net selling since September 2024, attributed to increased short positions amid geopolitical tensions and declining oil prices [41]. Trading Activity - Trading volumes were light due to corporate blackout periods ahead of earnings, with a significant portion of trading focused on Financials, Tech, and Health Care [54]. - The report anticipates a slow trading week ahead due to the Independence Day holiday in the US [54].

Investment Rating - The report indicates a positive outlook for the S&P 500, suggesting a continuation of the recent rally in the short term, with expectations of a peak around mid-July before a potential decline in August [2][11]. Core Insights - The S&P 500 has experienced a 10% increase since the end of March, marking the fastest recovery from a sell-off exceeding 15% in history [2]. - The report highlights that July is historically the strongest month for the S&P, with an average return of 1.67% since 1928, and the first half of July is projected to yield an even higher average return of 2.43% [6][11]. - The Russell 2000 index is noted to be trading 11.5% below its high, indicating a divergence in performance compared to the S&P and NDX [5]. - Systematic positioning in equity demand is expected to increase, with an estimated $80 billion of global equity demand over the next month, including $44 billion from U.S. markets [26]. Summary by Sections Market Performance - The S&P 500 reached another all-time high last week, the first since February 19, indicating strong market performance despite narrow market breadth [47]. Volatility - The report discusses a decrease in market panic as indicated by lower volatility levels, with a shift in investor preference towards "wingier" options for exposure to extreme risks [20][21]. Liquidity - S&P top of book liquidity stands at $12.48 million, up 21% from the one-year average, indicating improved trading conditions [41]. Retail Sector - Dips in retail demand have been correlated with declines in the S&P, suggesting that retail performance is a significant factor to monitor [54].

Investment Rating - The market is currently pricing a full rate cut by September and more than two cuts by the end of the year [4][15]. Core Insights - Since late April, the market has upgraded its growth views while easing its view of the Fed's reaction function, reversing less of the tighter policy shock than the negative growth shock [2][3]. - Strong labor market data and higher inflation prints could challenge the easing priced in by the market, but favorable inflation news could create more room for earlier and deeper easing [2][16]. - The best expression of the market moving towards pricing more rate cuts depends on the accompanying growth backdrop [15]. Summary by Sections Market Dynamics - The market has begun to push towards pricing more Fed easing, with potential scenarios illustrating how this could affect various assets [5][15]. - A dovish policy shock could lower 2-year yields by 25 basis points, leading to rising equities and a weaker dollar [8]. Scenarios Analysis - **Scenario 1**: Dovish policy shock with equities rising and yields falling [8]. - **Scenario 2**: US growth expectations fall by 50 basis points, leading to mixed currency performance and falling equities [9]. - **Scenario 3**: Dovish Fed shift combined with downgraded growth expectations results in modest equity declines and pronounced yield falls [10]. - **Scenario 4**: Dovish Fed shift with upgraded growth expectations leads to clear risk asset gains and slight yield decreases [11]. Investment Strategies - Positioning for lower yields and higher equities offers leverage in a dovish shock scenario [15]. - Lower yields but lower equities provide the best leverage in a negative growth shock [15]. - A shift towards pricing more Fed easing could reinforce USD weakness and steeper yield curves [15].

Investment Ratings - Arista Networks Inc (ANET): Buy with a 12-month target price of $115 [20] - Cisco Systems, Inc (CSCO): Neutral with a 12-month target price of $67 [21] - Dell Technologies (DELL): Buy with a 12-month target price of $130 [22] - Super Micro Computer Inc (SMCI): Neutral with a 12-month target price of $24 [23] - Hewlett Packard Enterprise Co. (HPE): Not Rated [24] - Juniper Networks (JNPR): Not Rated [25] Core Insights - The AI data center infrastructure market is expected to grow significantly, with AI servers projected to reach $335 billion by 2028, reflecting a 31% CAGR from 2024 to 2028 [4][8] - AI data center switching is anticipated to grow at a 41% CAGR, reaching $22 billion by 2028, with back-end Ethernet growing at a 60% CAGR and front-end Ethernet at a 52% CAGR [3][8] - The overall server industry forecasts remain largely unchanged, with traditional servers facing a decline of 2% CAGR from 2024 to 2028, while AI servers are expected to see robust growth [2][4] Market Share Dynamics - In the AI Networking segment, ANET lost 2 percentage points in back-end AI Ethernet market share, while Nvidia gained 5 percentage points [1] - In front-end AI Ethernet, ANET gained 3 percentage points, reaching 43% market share, while Cisco maintained its share at 11% [1][3] - Within the AI server market, revenue market share shifts were noted, but overall stability in market share for AI server orders is expected [1] Capital Expenditure Trends - Cloud data center equipment capital expenditures are projected to grow at a 19% CAGR from 2024 to 2028, reaching $591 billion by 2028 [7][25] - Total cloud provider capital expenditures are also expected to grow at a 19% CAGR over the same period, reaching $828 billion [7][25] Vertical Market Growth - The AI switching market is expected to grow at a 33% CAGR among hyperscale customers, 45% CAGR at Tier 2 Cloud & Service Providers, and 58% CAGR in the enterprise sector [3][8] - AI server demand is anticipated to be strong across various verticals, with hyperscalers seeing an 18% CAGR, Tier 2 Cloud at 58%, and enterprise at 48% [6][8]

Investment Rating - The report has shifted its forecast for the next 25 basis point (bp) rate cut to September, previously expected in December, and has lowered the terminal funds rate forecast to 3-3.25% from 3.5-3.75% [2][3][22] Core Insights - The report indicates that the odds of a rate cut in September are somewhat above 50%, driven by underwhelming tariff effects, larger disinflationary offsets, and potential labor market softness [2][13][10] - The expectation is for three consecutive 25bp cuts in September, October, and December 2025, with additional cuts anticipated in March and June 2026 [3][22] - The report highlights that recent evidence suggests tariff effects on consumer prices are smaller than previously expected, contributing to a more favorable environment for rate cuts [5][4][10] Summary by Sections Rate Cut Forecast - The forecast for the next rate cut has been moved forward to September, with expectations of three 25bp cuts in September, October, and December 2025 [2][3][22] - The terminal rate forecast has been reduced to 3-3.25%, reflecting a change in outlook regarding the economy's performance at higher interest rates [14][18][22] Inflation and Tariff Effects - Recent comments from Fed officials indicate potential support for a cut in September if inflation data is not excessively high [4][6] - Evidence shows that tariff impacts on consumer prices are less significant than anticipated, with moderating wage growth and weak demand for travel providing additional disinflationary pressure [5][10][11] Labor Market Dynamics - The labor market remains healthy, but job openings are slowly declining, making it harder for unemployed individuals to find jobs, which could influence the timing of rate cuts [10][11][12] - Near-term risks to payrolls are noted due to changes in immigration policy and residual seasonality, which could prompt earlier cuts if employment data shows weakness [10][13]

Investment Rating - The report does not explicitly state an investment rating for the transportation industry or specific companies within it. Core Insights - The report indicates a potential softening in freight trends from China to the US, with a sequential decrease of -4% in laden vessels and -7% in TEUs, suggesting that the anticipated surge in trade may be less robust than previously expected [1][5][21] - Container rates have dropped significantly, with a recent decline of -39% week-over-week, indicating a possible decrease in demand following the surge in imports from China [5][36] - The report outlines two potential scenarios for 2025: a pull-forward surge in trade ahead of a 90-day tariff pause or a continued slowdown in activity due to uncertainty surrounding tariffs [6][7] Summary by Sections Tariff Impact and Freight Trends - High-frequency data shows a decline in inbound traffic from China, with laden vessels down -4% and TEUs down -7% sequentially [1][5][21] - Container rates have decreased sharply, reflecting a potential drop in demand post-surge [5][36] - The report notes that while weekly data can be volatile, a multi-week analysis can provide insights into tariff-related trends [3][13] Trade Volume Analysis - June saw an estimated increase of ~$3 billion in imports year-over-year, following a surge of $4 billion in April and a drop of $3 billion in May, highlighting the volatility in trade flows [5][65] - Planned TEUs into the Port of Los Angeles increased by +14% sequentially, but forecasts indicate a potential drop-off in the coming weeks [39][41] Future Scenarios and Economic Outlook - The report presents three possible scenarios for transport stocks, ranging from a significant pull-forward in demand to a potential economic downturn affecting freight volumes [11][12] - Analysts have recently upgraded truckers, citing a reduced probability of recession and resilient consumer spending [11][12] Container and Vessel Trends - The report tracks weekly data on laden container vessels and TEUs, noting a recent sequential decrease after a period of growth [21][26] - The analysis indicates that while vessels from Asia excluding Mainland China remain positive, those from Mainland China have turned negative [27][28] Port Activity and Logistics - Major Chinese ports reported a +6% week-over-week increase in throughput, indicating some recovery in port activity [32][34] - The report highlights that intermodal traffic on the West Coast has seen a decline, reflecting potential lagging effects in the supply chain [46][49]