Group 1: USD Outlook - The USD index has shown a downward trend since the beginning of the year, primarily influenced by tariff policies, with a peak at 109 in early 2025 and a drop below 100 in April[1][7]. - Short-term fluctuations in the USD index are expected, with limited downward space before potential Fed rate cuts, while medium to long-term pressures include ongoing US debt issues, recession risks, and de-dollarization narratives[1][7]. - Key factors suppressing the USD include the continuous evolution of US debt issues, recession risks compounded by high interest rates, and the narrative of de-dollarization[1][7]. Group 2: HK Stock Market Strategy - Following a joint statement from China and the US on May 12, the Hang Seng Index rose nearly 3%, but the upward trend did not sustain, leading to a "wait and see" market attitude[2][10]. - Southbound capital inflows continue but at a slower pace, with over HKD 16.5 billion net inflow into the banking sector, while the technology sector faced a net outflow exceeding HKD 20.5 billion[2][10]. - The current valuation of the Hang Seng Index is slightly below pre-tariff levels, indicating a gradual recovery in market sentiment[2][10]. Group 3: US Economic Outlook - The outlook for the US economy remains unclear due to fluctuating tariff policies and their impact on inflation, with a potential rise in overall inflation post-tariff implementation[3][14]. - The US federal budget deficit for the first half of 2025 has exceeded USD 1.3 trillion, marking the second-highest deficit for a half-year period in history[3][14]. - The combination of rising interest rates and upcoming debt ceiling negotiations presents significant challenges for US fiscal policy in the latter half of 2025[3][14]. Group 4: US Stock Market Outlook - Major US indices have recovered from significant declines, reflecting investor confidence in the US economic fundamentals and policy adjustments[4][17]. - The anticipated tax cuts from the "Beautiful America Act" are expected to create structural opportunities in the US stock market, particularly benefiting traditional energy and local automotive sectors[4][17]. - Despite the challenges posed by fluctuating tariff policies, the US stock market is projected to exhibit a volatile upward trend in the second half of 2025[4][17]. Group 5: US Treasury Yield Trends - US long-term treasury yields have risen above 5%, with the 20-year and 30-year yields maintaining levels above 5.0% since late May[5][21]. - The increase in yields is attributed to the downgrade of the US credit rating by Moody's and concerns over the debt ceiling, which may lead to increased treasury supply and liquidity withdrawal[5][21]. - The expectation of delayed Fed rate cuts due to inflation concerns is likely to keep treasury yields elevated for an extended period[5][21].

Core Insights - The report discusses the recent rise in long-term US Treasury yields, with both 20-year and 30-year yields surpassing 5% and remaining above this level since late May 2023 [3][4][8] - The downgrade of the US credit rating by Moody's from Aaa to Aa1 on May 16 is identified as a primary factor contributing to the increase in yields, leading to a disappointing auction for 20-year bonds on May 21, where the final yield was 5.047%, up 24 basis points from April [4][6] - Concerns regarding the US debt ceiling have resurfaced, particularly following the passage of the "Beautiful Bill" on May 22, which allows for a $4 trillion increase in the debt ceiling, suggesting a return to expansionary fiscal policies [4][6][7] - Market fears of inflation and delayed interest rate cuts are also contributing to the sustained high yields, with the report indicating that the Federal Reserve's reluctance to lower rates could keep yields elevated for an extended period [8] Summary by Sections Recent Yield Trends - Long-term US Treasury yields have recently risen above 5%, with specific reference to the 20-year and 30-year bonds [3][5] - The yields have been influenced by a combination of credit rating downgrades, debt ceiling issues, and inflation concerns [4][8] Credit Rating Impact - The downgrade by Moody's has led to increased market volatility and higher yields, as all three major rating agencies have now rated US debt below the highest level [4][6] - The immediate effect was seen in the auction results, which reflected a significant increase in yield compared to previous months [4][6] Debt Ceiling Concerns - The passage of the "Beautiful Bill" has raised expectations of increased debt supply, which could further pressure yields upward [4][6][7] - Historical context is provided, noting that after previous debt ceiling resolutions, yields have tended to rise, indicating a potential pattern [6][7] Inflation and Interest Rate Outlook - The report highlights that inflation fears and the Fed's cautious stance on rate cuts are likely to maintain high yield levels [8] - The probability of a rate cut in June has dropped significantly, indicating a shift in market expectations regarding monetary policy [8][11]

Group 1 - The report indicates that the U.S. stock market has shown resilience despite significant volatility since the beginning of 2025, with major indices recovering from earlier declines caused by tariff policies [5][6][7]. - The S&P 500, Dow Jones, and Nasdaq indices have largely regained their losses, reflecting investor confidence in the U.S. economic fundamentals and adaptability to policy adjustments [6][7]. - The report anticipates a volatile upward trend for the U.S. stock market in the second half of 2025, driven by economic fundamentals and policy benefits, particularly from the "Beautiful Bill" tax cuts [14][26]. Group 2 - The "Beautiful Bill" tax plan is expected to be a key driver for the U.S. stock market, with projected tax cuts amounting to $3.8 trillion over the next decade, while also increasing the fiscal deficit by approximately $2.5 trillion [17][18]. - The report highlights that the tax cuts will create structural opportunities in traditional energy, high-tax state consumption, and domestic automotive sectors, while clean energy and healthcare sectors may face challenges [26]. - The performance of various sectors has been uneven, with industrials, utilities, and consumer staples leading gains, while non-essential consumer goods and healthcare lagged due to trade uncertainties and high valuations [9][14]. Group 3 - The technology sector, particularly the Magnificent 7 (Mag 7), has shown signs of recovery, with a significant rebound in stock prices following earlier declines due to tariff policies [21][22]. - The report notes that the Mag 7 companies have demonstrated strong earnings growth, with a 28% year-over-year increase in Q1, surpassing the S&P 500's 9% growth [22]. - The tax plan's provision allowing full deduction of domestic R&D and experimental expenses is expected to benefit technology companies heavily reliant on research and development [22][26].

Core Insights - The report indicates that the US stock market has experienced a strong rebound, with the Nasdaq 100 and S&P 500 indices rising by 6.4% and 4.5% respectively [3][4] - The primary catalyst for this rally was the unexpected positive outcome of the US-China trade negotiations, which led to significant reductions in bilateral tariffs [6][9] - The report highlights that sectors closely tied to global manufacturing and supply chains, such as information technology, consumer discretionary, and telecommunications, outperformed the S&P 500 index [3][5] Economic Factors - The US tariffs have become a dominant factor influencing the performance of the US stock market, primarily due to the widespread impact of Trump's tariff policies [9] - Concerns about tariffs potentially causing a rebound in US inflation and hindering the Federal Reserve's ability to cut interest rates have been alleviated by the recent tariff reductions [9][14] - The Consumer Price Index (CPI) data for April showed a year-on-year increase of 2.3%, marking the lowest level since February 2021, which further supports the bullish sentiment in the stock market [10][14] Market Outlook - The report suggests that while the immediate outlook for the US stock market appears positive due to improved trade relations, uncertainties remain regarding the long-term effects of tariff policies and potential inflation risks [15] - The market's expectations for the Federal Reserve's next interest rate cut have been pushed back from July to September, indicating a cautious approach to monetary policy amid ongoing economic assessments [14][15] - Investors are advised to maintain a cautious stance towards the US stock market, anticipating a period of consolidation in the near term [15]

Group 1 - The report highlights that the recent US-China trade negotiations have led to a significant improvement in market sentiment, with a notable increase in risk appetite observed in the markets [6][7][9] - The US has temporarily suspended 91% of retaliatory tariffs, retaining only a 10% baseline tariff, which is expected to provide the US economy with a period of relief to implement tax cuts and fiscal stimulus [7][8] - The report anticipates that the US dollar assets may experience a sustained rebound due to the lack of significant economic downturn in the US and the Federal Reserve's stable stance [6][9] Group 2 - The report indicates that the recent trade agreement has resulted in a significant rise in both short-term and long-term US Treasury yields, reflecting a typical "risk-on" market response [6][13] - Short-term yields are expected to have limited downward movement due to the resilience of the US economy, while long-term yields are projected to fluctuate within the range of 4.2% to 4.5% [18][20] - The report suggests that the market's narrative remains focused on the recovery of risk appetite, indicating an optimistic outlook for future economic conditions [16]

Trade Negotiations and Market Reactions - The recent US-China trade negotiations in Geneva showed goodwill from both sides, indicating significant progress, which positively impacted market sentiment[5] - Following the announcement, safe-haven assets like gold, yen, and bonds saw price declines, while the Chinese yuan strengthened against other Asian currencies[6] - The Hang Seng Index has largely recovered from tariff impacts, reflecting a shift in investor focus towards more stable sectors[6] Export Data and Economic Indicators - China's overall exports grew by 8.1% in April, significantly exceeding market expectations of around 2%, despite a notable decline in exports to the US[9] - This strong export performance suggests that Chinese companies have prepared well for ongoing trade tensions, with non-US markets showing potential for future growth[9] Inflation and Currency Outlook - The potential trade agreement may lead to adjustments in market pricing of US inflation risks, with overall macroeconomic risks appearing to decrease[9] - The US dollar index may experience mixed performance, as the potential for a trade deal could lead to a decline in dollar asset risks, while emerging market currencies may appreciate[9] Market Trends and Future Focus - The focus remains on the US-China trade negotiations and upcoming US CPI data, with expectations of potential inflationary pressures due to tariffs[10] - Despite high long-term inflation expectations in the US, the overall market risk appetite is not expected to be significantly impacted by inflation data[13]

Core Insights - The report highlights the significant impact of fluctuating tariff policies from the Trump administration on the Hong Kong stock market, particularly noting a record high in net inflows from southbound funds during market downturns [4][5]. - Southbound funds exhibit a "buy on dips" strategy, showing a negative correlation with the Hang Seng Index's returns, particularly during extreme market conditions [8][9]. - The investment style of southbound funds has shifted towards technology growth sectors in 2025, reflecting an increased risk appetite amid changes in domestic AI industry dynamics [12][14]. Market Behavior Analysis - Southbound funds have demonstrated a consistent pattern of increasing net purchases during significant market declines, with a notable case on April 2, 2025, when the Hang Seng Index dropped by 13.22% but saw a net inflow of HKD 15.373 billion [6][11]. - The report identifies "abnormal drop points" based on specific criteria, capturing various market turmoil periods, including the COVID-19 pandemic and inflation concerns from 2022 to 2023 [6][11]. Sector Preferences - In the first quarter of 2025, southbound funds favored high-dividend sectors such as energy and telecommunications, but have recently shifted focus towards technology and non-essential consumer sectors due to improved domestic conditions [12][14]. - The report notes substantial net inflows into the financial sector (HKD 23.78 billion) and significant investments in non-essential consumption (HKD 49.48 billion) and information technology (HKD 27.78 billion) during the recent tariff shocks [14][15]. Future Outlook - The report anticipates a period of consolidation for the Hong Kong stock market, suggesting a "barbell" investment strategy that gradually increases exposure to technology growth sectors [17]. - It emphasizes that sectors with higher domestic influence, such as telecommunications, utilities, and healthcare, are likely to experience less volatility amid external pressures, while sectors benefiting from domestic consumption policies may also see positive impacts [17].

Group 1: Hong Kong Stock Market Strategy - The Hong Kong stock market is expected to consolidate in the short term, with a "barbell" investment strategy recommended for balanced allocation[1] - After recent corrections, the Hong Kong stock market presents high investment value, supported by rising expectations of domestic counter-cyclical policies[1] - High-dividend stocks are likely to provide a certainty premium and may outperform in the current market environment[1] Group 2: Impact of Trump's Tariff Policies - Trump's tariff policies are expected to increase the tariff rate on China to 125%, potentially leading to a decline in corporate profits and reduced willingness to export to the U.S.[1] - The anticipated impact of tariffs could account for approximately 10% of China's total exports, affecting GDP by about 2%[1] - The market is likely to experience sideways movement due to uncertainties surrounding the implementation of tariffs and their economic implications[1] Group 3: U.S. Financial Market Volatility - The U.S. financial markets have experienced significant volatility, raising doubts about the effectiveness of fundamental and technical analysis[2] - A notable increase in U.S. Treasury yields, coupled with a decline in the dollar index, indicates a "trust crisis" in the dollar[2] - The Trump administration's tariff policies may lead to a reliance on achieving trade agreements to restore confidence in the U.S. economy[2] Group 4: Dollar Index and Credit Weakening - The dollar index has fallen significantly, reaching a two-year low of 99.01, primarily due to uncertainties surrounding Trump's tariff policies[3] - The weakening of the dollar's credit is accelerating, driven by a decline in U.S. economic advantages and an increase in de-dollarization trends[3] - The forecast for the dollar index has been adjusted to a range of 98-104, indicating a potential long-term weakening trend[3]

Economic Impact - The U.S. import tariffs are projected to increase from 2.5% in 2024 to 16.5%, the highest level since 1937, potentially raising $1.5 trillion in revenue from base tariffs and $1.3 trillion from punitive tariffs over the next decade[7] - The increase in tariffs is expected to reduce U.S. GDP by 0.4% and 0.3% respectively, with a direct impact of nearly 2% on disposable income for American households in 2025[7] - Recent tariffs may lead to an overall inflation increase of 2.3% in the U.S., with food prices rising by 2.8% and automobile prices by 8.4%, costing the average American household approximately $3,800 annually[7] Market Reactions - The 10-year U.S. Treasury yield has risen by nearly 50 basis points recently, indicating a significant market reaction to economic data and commodity price fluctuations[11] - The U.S. dollar index has experienced a substantial decline, reflecting a "crisis of trust" in the dollar amidst rising Treasury yields[12] - The recent volatility in the financial markets has led to skepticism regarding the effectiveness of fundamental and technical analysis, with tariff negotiations becoming a primary focus for short-term investors[5] Inflation Data - The U.S. Consumer Price Index (CPI) for March increased by 2.4% year-on-year, the lowest level in seven months, slightly below the expected 2.5%[8] - The core CPI rose by 2.8% year-on-year, marking the lowest increase since March 2021, indicating a potential easing of inflationary pressures[8] Government Response - The U.S. Treasury is closely monitoring the rise in the 10-year Treasury yield, which is considered a key performance indicator (KPI) for the government[16] - The Trump administration may need to pursue a comprehensive trade agreement or rely on a significant economic downturn in non-U.S. economies to restore confidence if tariff policies remain unchanged[16]

Core Insights - The report indicates that after a strong start to the year, the Hong Kong stock market has entered a period of consolidation, with the technology and internet sectors being the main contributors to the earlier gains [2][3] - Despite the recent slowdown, the overall market remains active, with average daily trading volumes exceeding HKD 200 billion, significantly higher than the historical average of around HKD 1000 billion over the past decade [5][6] - The report highlights that foreign capital has been optimistic about the Hong Kong market, with significant inflows into technology and consumer sectors, driven by the performance of the Nasdaq Golden Dragon China Index [8][11] Market Performance - The technology sector has outperformed the Hang Seng Index, with notable increases of 32.0% in information technology, 27.5% in discretionary consumption, and 18.7% in healthcare [3][4] - High-dividend sectors such as materials, energy, and finance have seen slight rebounds during the recent market fluctuations [3] Capital Flows - Southbound capital has accelerated its inflow into the Hong Kong market since Q4 2024, influenced by declining domestic risk-free interest rates and improved industry expectations, particularly in AI-related companies [11] - The report notes a shift in domestic investors' preferences from high-dividend sectors to technology and consumer industries, reflecting a growing interest in growth potential [11] Earnings and Valuation - Recent earnings reports from major technology companies have exceeded market expectations, with many planning to increase capital expenditures in computing and AI [12][14] - As investor expectations adjust and valuations recover to historical averages, there is increasing divergence in views regarding corporate earnings and future growth potential [14] Investment Strategy - The report recommends maintaining a "barbell" investment strategy, focusing on both technology and hardware sectors for revaluation opportunities while also holding stable high-dividend sectors for reliable income [15]