A short, preventive rate hike by the Federal Reserve is the base-case scenario.
On the domestic front, the tension between "strong supply and weak demand" and "rising prices with falling volumes" is becoming more pronounced. Weakening in the export chain warrants caution, while the repair of domestic demand depends on fiscal spending in physical terms taking over. Mortgage interest subsidies are a positive signal.
Overseas, the combination of "low layoffs, weak hiring" plus sticky inflation has pushed the Fed into a rate-hiking cycle. Yet high rates and high oil prices are weighing on traditional demand, and the reflexive nature of interest rates will gradually curb AI investment. Under the substitution effect of AI, employment is settling into a weak equilibrium, all of which reduces the need for sustained rate hikes. High oil prices stemming from the Middle East standoff remain the biggest source of disruption.
Under the base case, we judge this round of Fed tightening to be a brief, preventive hike, though we still need to guard against risks from uncertainty in the Middle East situation.
The ability of large AI models to catalyze the next round of breakthroughs is still pending, but demand for computing power has not weakened, and the ROI picture is gradually becoming clearer. Industrial technology and application breakthroughs are not linear: embrace beta during acceleration phases, and focus on structural opportunities during transition periods.
Cross-asset allocation and strategy recommendations, based on macro and industry trend analysis along with historical review, suggest there is no need to be overly pessimistic on risk assets. In the short term, we should still look for areas with stronger earnings-side advantages. In the latter half of Q4, there may be a global risk-on opportunity as the Fed's rate path becomes clearer. That said, it remains necessary to retain hedging tools against tail inflation risks arising from the Middle East deadlock and elevated oil prices.
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