Key Developments
1. China's April Loan Prime Rate (LPR) remained unchanged, with the one-year rate at 3% and the five-year rate at 3.5%, marking the eleventh consecutive month without adjustment. The stability in LPR is attributed to steady policy rates, pressure on bank net interest margins, resilient domestic economic recovery, and constraints from external inflation and overseas policies.
2. The U.S. Senate Banking Committee held a hearing on the nomination for Federal Reserve Chair. Candidate Kevin Warsh emphasized that, if confirmed, he would maintain the Fed's independence and not yield to pressure from President Trump. Warsh stated that Trump never requested a commitment to lower interest rates, and he would not agree to such demands. He proposed comprehensive reforms to the Federal Reserve and the establishment of a new inflation framework. Senator Tillis insisted he would not support the nomination unless the Justice Department concludes its investigation into Jerome Powell.
3. A Pakistani diplomat indicated that U.S.-Iran negotiations have reached a stalemate, with progress being very slow. The U.S. remains committed to maintaining a maritime blockade against Iran, which Tehran views as an obstacle to negotiations. Iran emphasized that reaching an agreement with the U.S. will take time and urged against rushing the process. Israeli Defense Minister Katz stated that Israel is prepared to resume hostilities with Iran, awaiting a "green light" from the U.S. President Trump affirmed that he does not intend to act hastily amid ongoing talks with Iran and ruled out the use of nuclear weapons. He also announced a three-week extension of the ceasefire between Israel and Lebanon.
4. Sources revealed that Iran has adopted a tougher stance compared to the first round of negotiations, insisting that any resolution to end the conflict must be based on its terms rather than those proposed by President Trump. Iranian Foreign Minister Araghchi met with Pakistan's Army Chief Munir in Islamabad to discuss the latest ceasefire developments in the U.S.-Israel-Iran conflict and enhance regional peace and stability cooperation. The Iranian delegation has since departed Pakistan. President Trump canceled the planned trip of special envoy Wittkof and his son-in-law Kushner to Pakistan for negotiations with Iran.
5. The U.S. Justice Department unexpectedly dropped its criminal investigation into the Federal Reserve and Chair Jerome Powell, referring the matter to the Fed's Office of Inspector General. This move removes a significant obstacle to the confirmation of Trump's nominee, Kevin Warsh, as the next Fed Chair. The announcement has heightened expectations for interest rate cuts within the year.
6. The People's Bank of China will conduct a 400 billion yuan Medium-term Lending Facility (MLF) operation on April 27. With 600 billion yuan in MLF set to mature in April, this will result in a net withdrawal of 200 billion yuan for the month. This marks the first reduction in MLF operations after 13 consecutive months of increases. Combined with outright reverse repo operations, the central bank withdrew a total of 600 billion yuan in medium-term liquidity in April.
Market Performance Review
Futures Market
Futures prices showed mixed performance last week, with oil posting the largest gains and gold declining the most. ICE Brent crude settled at $105.88, up 17.15%, while COMEX gold fell 3.16% to $4,725.4.
The U.S. dollar index rose by 29.78 basis points, strengthening amid the deadlock in Middle East tensions. Against this backdrop, the Chinese yuan depreciated by 183 basis points, and the Japanese yen weakened by 75.05 basis points.
Stock Market
In the A-share market, major indices generally advanced last week. The STAR 50 Index led gains with a 2.13% increase, while the ChiNext Index fell 0.29%, recording the largest decline. The domestic stock market rebounded following the release of a new generation of AI large models. The equity-focused fund index rose by 0.41%.
In Hong Kong, the Hang Seng Index declined by 0.70%, and the Hang Seng Tech Index dropped 2.79%. Fluctuating Middle East tensions contributed to a decline in global risk appetite, weighing on the Hong Kong market.
U.S. stocks posted gains last week, with the Nasdaq Composite rising 1.50%, performing the best among the three major indices, while the Dow Jones Industrial Average fell 0.44%. Although recurring Middle East conflicts dampened risk appetite, ongoing advancements in AI large models attracted capital inflows into tech stocks. Weekend negotiations indicated that core demands from both sides remain difficult to reconcile, suggesting potential further volatility. Attention remains on how major economies will balance growth and inflation in a high-interest-rate environment.
Bond Market
In the domestic bond market, credit bonds generally experienced slight declines last week, with most maturities and ratings falling by 0 to 3 basis points. Short-term government bond yields fell more sharply than long-term yields, with the 3-year government bond dropping 5 basis points, the largest decrease. Easy liquidity conditions continued to support a downward trend in bond markets. Looking ahead, recent anti-involution policies and escalating Middle East tensions have significantly boosted inflation expectations. Market participants are monitoring the duration and intensity of the inflation rebound.
U.S. Treasury yields mostly increased last week, with the 3-year and 5-year yields rising by 8 basis points, the largest gains. Renewed oil price pressures due to Middle East tensions, combined with Warsh's emphasis on inflation, contributed to the rise in U.S. bond yields. Focus remains on whether the U.S. economy can achieve a soft landing amid high interest rates and international political uncertainties.
Asset Allocation Outlook
4.1 Domestic MLF Reduction and Warsh's Pre-Appointment Hearing
Last week, China maintained its April LPR unchanged and conducted a 400 billion yuan MLF operation. With 600 billion yuan maturing, this resulted in a net withdrawal of 200 billion yuan, ending 13 consecutive months of net injections and potentially signaling a shift after an extended period of monetary easing. Going forward, expanding domestic demand remains a policy priority, while export stability driven by industrial chain advantages should support economic growth. Amid significant overseas uncertainties, the domestic economy is expected to experience moderate fluctuations and recovery.
Internationally, stalled Middle East negotiations have pushed oil prices higher, reigniting inflation concerns. Additionally, Trump's Fed Chair nominee, Kevin Warsh, emphasized the Fed's independence and the importance of inflation in policy decisions during his pre-appointment hearing, increasing expectations for monetary tightening. With rising oil prices and Warsh's focus on inflation, market expectations for monetary easing have weakened. The probability of further rate cuts in 2026 has declined from 65% to 45%.
Risk Disclosure: The information in this material is sourced from publicly available data, and no guarantee is made regarding its accuracy, completeness, or reliability. The views and analysis represent the research team's opinions and do not constitute actual investment results or investment advice. Unauthorized reproduction by any media, website, or individual is prohibited.
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