A-shares staged a broad rally today, with the Shanghai Composite Index climbing 1.41%, the Shenzhen Component Index surging 2.44%, and the ChiNext Index jumping 3.14%. Total trading volume on the Shanghai and Shenzhen markets reached 2.39 trillion yuan, up 244.6 billion yuan from the previous session. Market hotspots rotated rapidly, with over 4,300 stocks advancing across the board.
The semiconductor sector strengthened, with Tongfu Microelectronics and Youyan New Materials hitting their daily limit-ups. The computing hardware segment also rose, with Huazheng New Materials and Gongjin Electronics among the stocks hitting limit-ups. Other gainers included aerospace equipment, precious metals, industrial metals, photovoltaic equipment, non-ferrous metals, consumer electronics, and robotics. On the downside, sectors like baijiu, gaming, film and television, pharmaceutical distribution, coal, and media declined.
Japan's Nikkei 225 index closed up 0.74% at 69,220.25 points, with memory giant Kioxia surging 15.07% and SoftBank Group rising 2.56%.
Key catalysts behind the surge
Last week, the U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) were released, indicating a moderation in inflation pressures. Combined with the unexpected decline in U.S. retail sales in July and falling oil prices, market expectations for another Federal Reserve rate hike have significantly diminished. According to the CME FedWatch tool, the probability of a September rate hike has fallen to around 33%.
"Driven by improved risk appetite, A-shares have seen a major rally," said Xiang Qirui, a researcher at Guolian Futures. "The external environment has shown marginal improvement, with the U.S. July nonfarm payrolls data coming in well below expectations, strengthening expectations for a policy shift by the Fed. Additionally, the agreement between Iran and Oman on shipping in the Strait of Hormuz has provided a short-term boost to risk appetite."
Goldman Sachs Chief Economist Jan Hatzius recently assessed that a September rate hike by the Fed is "now highly unlikely." The combination of cooling U.S. consumption, stagnation in employment trends, and sustained improvement in inflation is fundamentally undermining the case for further Fed rate hikes. Current market rate pricing remains relatively "hawkish," suggesting room for downward adjustments.
In Europe, the European Central Bank may raise rates by 25 basis points in September, but the next move is more likely to be a cut. Notably, the U.S. Treasury yield curve has steepened markedly, with short-term yields falling while long-term yields rise. Market analysts view this as a tug-of-war between two forces: one is the easing of short-term rates as the Fed pauses, while the other is the rise in long-term yields driven by energy supply shocks, economic resilience, and insufficient policy communication. This dynamic makes it difficult to explain market performance solely through the lens of rate hikes or pauses.
Outlook for A-shares
Looking ahead, Xiang Qirui noted that the market is in a transitional phase where earnings recovery is nearing its end and policy support is just beginning. Whether the market can stabilize and trend upward depends on substantial improvements in earnings expectations for midstream and downstream companies, as well as sustained inflows of larger-scale long-term capital.
Zhongtai Futures believes that July's social financing data showed a year-on-year decline in aggregate financing and slower credit growth, indicating weak real-sector financing demand. This has strengthened expectations for further policy easing. The divergent performance of broad-based indices implies a certain rebalancing force. Short-term A-shares may remain highly volatile but tend to decline, with limited downside for heavyweight broad-based indices.
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