Core Viewpoint - The US dollar is expected to remain weak in the medium to long term, despite being overvalued since Trump's presidency began [1] Group 1: Dollar Valuation - Analysts believe the dollar is still overvalued, even after a decline since Trump's inauguration [1] - Concerns regarding the independence of the Federal Reserve have negatively impacted market sentiment [1] Group 2: Economic Indicators - The expanding deficit poses a long-term risk to the stability of the US debt market [1] - Any potential recovery of the dollar is likely to be short-lived, as markets typically do not move in a straight line and will experience periods of consolidation [1]

Group 1 - The U.S. government is threatening to impose a 100% tariff on imported semiconductor products, which reflects a strategy to encourage high-end manufacturing to return to the U.S. [1] - The tariffs are aimed at creating uncertainty in trade negotiations and are part of a broader strategy to reshape domestic supply chains and reduce reliance on foreign manufacturing [2] - The U.S. has been facing challenges such as a high trade deficit and increasing federal debt, prompting the need for structural changes in its economic policies [2] Group 2 - The proposed tariffs could lead to increased prices for imported goods, potentially raising inflation in the U.S. and complicating the manufacturing landscape [3] - The U.S. is seeking investments from allied countries in high-end manufacturing sectors, including semiconductors and pharmaceuticals, to bolster its domestic industry [2] - China's share of semiconductor exports to the U.S. is minimal, but the broader implications of tariffs could disrupt supply chains and impact U.S. competitiveness in global markets [3] Group 3 - China is focusing on expanding its domestic market and reducing reliance on the U.S. market, with exports showing a 7.2% year-on-year growth in July [4] - The trade value between China and the U.S. has decreased by 11.1% in the first seven months, indicating a shift in trade dynamics [4] - China's manufacturing sector is expected to strengthen its global position through innovation and leveraging its large domestic market [4]

Core Viewpoint - JPMorgan believes that the US dollar is still overvalued by 5% to 15% against major currencies, even after reaching recent lows [1] Group 1: Economic Analysis - The report indicates that the narrowing of cyclical interest rate differentials and ongoing asset allocation adjustments suggest potential downward pressure on the dollar [1] - Factors supporting the expectation of further dollar weakness include the diminishing economic advantage of the US compared to other economies, slowing foreign capital inflows, and increased risk aversion [1] Group 2: Investment Recommendations - The bank continues to advise US investors to diversify their international allocations [1] - Non-US investors are encouraged to manage their dollar exposure effectively [1]

Core Viewpoint - Federal Reserve Chairman Jerome Powell expressed that there is no clear view on whether the US dollar is overvalued [1] Group 1 - Powell's statement indicates uncertainty regarding the valuation of the US dollar in the current economic context [1]

Core Viewpoint - The ongoing trade war has not definitively proven that tariffs can achieve trade rebalancing, but it has clearly triggered signs of global capital rebalancing, which has invigorated the Hong Kong market [1] Group 1: Market Activity - The Hong Kong Monetary Authority has purchased over $17 billion to maintain the currency peg [1] - India experienced its first net inflow of foreign capital in May-June this year [1] Group 2: Currency Valuation - The current value of the US dollar is widely considered to be overvalued by 15%-20%, primarily due to significant capital inflows that have driven up the exchange rate [1] Group 3: Future Outlook - In the context of global capital flows and the search for diversified allocations, China's offshore market and A-shares are expected to continue benefiting from capital rebalancing [1]

Core Viewpoint - The Milan Report presents a comprehensive strategy for restructuring the global trade system, emphasizing the need to address the overvaluation of the US dollar as a root cause of global economic imbalances [1][2]. Group 1: Milan Report Insights - The Milan Report, titled "A User's Guide to Restructuring the Global Trade System," was published by Hudson Bay Capital in November 2024 [1]. - It argues that the persistent overvaluation of the US dollar hinders balanced international trade, stemming from low elastic demand for reserve assets globally [1]. - The report suggests that tariffs can be a unilateral tool for the US government to address dollar overvaluation, allowing other countries to share the cost of the US providing global reserve assets [1]. Group 2: Proposed Strategies - Besides tariffs, the US can utilize both multilateral and unilateral monetary strategies to reduce trade and financial imbalances [2]. - A multilateral strategy involves signing a new version of the Plaza Accord (referred to as the Mar-a-Lago Agreement) with other major countries to encourage their currencies to appreciate against the dollar [2]. - The report also recommends converting US Treasury holdings into ultra-long-term bonds to alleviate repayment pressures on the US government [2]. Group 3: Implications of Tariffs - The report indicates that the first round of tariffs imposed by the Trump administration benefited the US by increasing fiscal revenue and mitigating inflation due to currency depreciation in other countries [3]. - It posits that if China were to devalue the yuan in response to US tariffs, it could lead to a significant capital outflow and financial market turmoil in China [3]. Group 4: Counterarguments and Risks - The analysis overlooks the adjustments already made in the Chinese real estate market prior to the potential new tariffs, with signs of stabilization emerging [4]. - It also fails to recognize that the Chinese government is unlikely to significantly devalue the yuan as a countermeasure to tariff pressures, given the lack of basis for such a move [4]. - The report does not account for China's reduced trade dependency on the US and its strategic shift towards domestic consumption and expanding internal demand [4]. Group 5: Global Cooperation and Currency Dynamics - The report neglects the potential for China to enhance cooperation with other countries to counter US actions, which could lead to improved bilateral relations, particularly with Europe [5]. - It warns that unilateral and multilateral strategies could damage the US's reputation as a global market provider and the dollar's status as a reserve currency, potentially accelerating changes in the international monetary system [5]. - The report suggests that if the US continues down a path of isolationism, it could create opportunities for the internationalization of the yuan, particularly in commodity trading and cross-border settlement [5].

Market Overview - US stock market experienced two consecutive declines ahead of the Federal Reserve's interest rate decision, with Palantir dropping 12% after its earnings report [2][5] - Offshore RMB rose over 100 points, breaking the 7.20 mark, while the Nasdaq 100 gained over 1% in after-hours trading [2] - 10-year US Treasury auction showed strong demand, leading to a decline in bond yields [2][5] - Crude oil prices rebounded nearly 5%, and spot gold surged above $3,400 [2] Key News - He Lifeng will visit Switzerland and France for high-level economic talks, including discussions on US-China trade [3][8] - The EU plans to impose tariffs on $100 billion worth of US goods if trade negotiations fail [9] - The US trade deficit reached a record high of $140.5 billion in March, with imports surging 4.4% to a record $419 billion [10] - Nvidia's CEO projected that China's AI market could reach $50 billion [10] Domestic Macro - China's April Caixin Services PMI was reported at 50.7, indicating a slowdown in new orders [13] - The Chinese government aims for a 5% growth target by 2025, with plans for more proactive macro policies [14] Domestic Companies - Apple is expected to launch a domestic AI version supported by Baidu and Alibaba, ensuring compliance with local regulations [15] Overseas Macro - The US Treasury Department reported a successful 10-year bond auction, indicating a return of overseas demand [16] - Concerns over inflation may lead the Federal Reserve to delay interest rate cuts [16] Industry Insights - The AI Agent development is transforming the software landscape, making databases essential for AI applications [23] - The military industry is facing pressure, with revenue and profit at low levels, but potential recovery is expected in 2025 [23] - The industrial control sector shows signs of recovery, with strong performance from leading companies [23]

Group 1 - The core viewpoint of the article is that the US dollar is currently overvalued by approximately 16%, driven by global capital chasing the attractive returns in the US [1][2][3] - As the US return advantage diminishes, the overvaluation of the dollar is expected to gradually correct, indicating potential mid-term adjustment pressure on dollar-denominated assets [2][9] - Goldman Sachs employs two primary models, GSDEER and GSFEER, to assess dollar valuation, revealing that the actual trade-weighted dollar index is about 16% higher than its fair value [3][4] Group 2 - The GSDEER model, an enhanced version of the purchasing power parity (PPP) model, suggests that the actual exchange rate tends to revert to a long-term mean, influenced by productivity and trade condition differences [4][5] - The GSFEER model focuses on economic imbalances, linking currency valuation to a country's current account and its "standard level," indicating that the dollar is overvalued by approximately 17% [5][6] - The current US current account deficit is around 4%, and if it narrows to 2.6%, it could lead to a 16.5% adjustment in the dollar; further reductions to 2% and 1% could result in 22% and 31% depreciation, respectively [7][8] Group 3 - The research highlights that the degree of dollar overvaluation is highly dependent on the assumptions regarding the current account "standard level," with the US being a relatively closed economy [8] - Historical examples, such as the rapid depreciation of the British pound post-Brexit and the euro during the gas price shock, illustrate that currencies can adjust quickly to reach fair value [8][9] - The article emphasizes that once fair value is reached, currencies can overshoot, and the persistent overvaluation of the dollar may witness gradual adjustments as the US relative return advantage weakens [9]

Core Viewpoint - Goldman Sachs analysts indicate that the US dollar is currently overvalued by approximately 16%, driven by global capital chasing the superior return prospects of the US. As the US return advantage diminishes, the overvaluation of the dollar may gradually correct, suggesting potential mid-term adjustment pressure on dollar-denominated assets [1][4]. Valuation Models - Goldman Sachs employs two primary models, GSDEER and GSFEER, to assess dollar valuation, revealing that the actual trade-weighted dollar index is about 16% above its fair value [2]. - The GSDEER model, an enhanced version of purchasing power parity (PPP), shows that the dollar is overvalued by approximately 15% against the trade-weighted index, particularly against the yen, yuan, euro, and Canadian dollar, with the most significant mismatches against the yen and yuan [2]. - The GSFEER model, which focuses on economic imbalances, indicates that the dollar is overvalued by about 17%, with over 16% attributed to the deviation of the US current account deficit from its "standard level" [2]. Current Account Deficit and Dollar Adjustment - The degree of dollar overvaluation is highly dependent on the assumptions regarding the current account "standard level." Currently, the US actual current account deficit is around 4% [3]. - If the current account deficit narrows to 2.6%, it could correspond to a 16.5% adjustment in the dollar; further reduction to 2% (close to the IMF 2023 standard) could lead to a 22% depreciation; and a reduction to 1% may require a 31% depreciation [3]. - The research emphasizes that due to the relatively closed nature of the US economy (with exports accounting for about 11% of GDP), a more significant exchange rate adjustment is necessary to address a similar-sized current account gap compared to more open economies [3]. Historical Context and Future Outlook - Historical examples show that currencies can rapidly adjust to fair value when significant macroeconomic changes occur, as seen with the British pound post-Brexit and the euro during gas price shocks [3]. - Goldman Sachs suggests that the overvaluation of the dollar has been a persistent phenomenon in recent years, but as the relative return advantage of the US diminishes and potential policy shifts occur, the market may witness a gradual adjustment of the dollar to a more reasonable valuation level [4].