Key Information Analysis
The US economy added 172,000 non-farm payrolls in May, significantly surpassing the market consensus of 85,000. The unemployment rate held steady at 4.3%, while average hourly earnings rose 0.3% month-over-month, both meeting expectations. The data for March and April was revised upward by a combined 93,000, resulting in the strongest three-month employment gain in over two years. Following the release, the interest rate swaps market has fully priced in a Federal Reserve rate hike within the year.
The US ISM Services PMI for May rose to a three-month high of 54.5, exceeding the forecast of 53.8. Both the New Orders and Business Activity indices increased, indicating continued resilience in consumer demand. The Prices Paid index climbed to 71.3, its highest level since August 2022.
Iran's Foreign Ministry issued a statement strongly condemning US military strikes on radar and coastal monitoring facilities in the Sirik region and Qeshm Island. It labeled these attacks a blatant violation of the ceasefire agreement and a military aggression against Iran's sovereignty and territorial integrity. The statement asserted that repeated US violations demonstrate a lack of intent to de-escalate and return to stability, instead engaging in risky actions that pose serious threats to regional security. It holds the US government responsible for all consequences and any potential escalation.
In his first public remarks since stepping down as Fed Chair, former Federal Reserve Governor Powell warned that if any US president could dismiss Fed officials over policy disagreements, it would undermine the credibility essential for a strong and stable economy.
A leaked internal memo from new Fed Chair Warsh outlined his commitment to uphold the "finest traditions of the Federal Reserve" while also signaling a pursuit of change. Several former senior Fed officials indicated Warsh plans to gradually withdraw the current forward guidance on interest rates and remove language from policy statements hinting at future rate moves. Concurrently, Warsh appointed two conservative policy figures as transition advisors, one of whom has previously advocated for a "complete restructuring of the Fed."
Market Performance Review
Fund Market
Data source: Wind. Period ending June 5, 2026.
Regarding fund filings and launches, 55 funds were filed last week, including 11 ordinary hybrid funds. Bond fund filings (5) were fewer than equity fund filings (33), with 6 FOFs filed. On the issuance side, total fund issuance amounted to 24.827 billion yuan last week, with equity fund issuance scale seeing a decrease.
Futures Market
Data source: Wind. Period ending June 5, 2026. Futures price changes are calculated based on settlement prices.
Futures prices generally declined last week. Oil posted the largest gain, while corn saw the largest drop. ICE Brent crude closed at $92.78, up 1.82%. COMEX gold closed at $4,353.9, down 5.21%.
The US Dollar Index rose by 115.27 basis points last week, driven by the strong employment data. In this context, the Chinese yuan depreciated by 265 basis points, and the Japanese yen depreciated by 106 basis points.
Equity Market
Data source: Wind. Period ending June 5, 2026.
In the A-share market, major indices declined last week. The CSI 500 fell 1.30%, the smallest drop, while the STAR 50 fell 4.74%, the largest. Subdued domestic economic data coupled with high market concentration led to a pullback in risk appetite, resulting in the downturn. The equity-biased fund index fell 1.37%.
Data source: Wind. Period ending June 5, 2026.
Among A-share style indices, the Low PB Index fell 0.17%, performing best, while the Moutai Index fell 2.61%, performing worst. Market style favored small-cap value.
Data source: Wind. Industry classification: Shenwan primary. Period ending June 5, 2026.
Sector-wise, 7 out of 31 Shenwan primary industries rose last week, while 24 fell. The coal sector continued its upward trend, rising 6.36% (the highest gain) driven by falling risk appetite and supply contraction logic. Other high-dividend value sectors also advanced, with petroleum & petrochemicals and banking rising 1.29% and 1.10%, respectively, among the leaders. Conversely, large-cap growth and pro-cyclical sectors saw significant adjustments. Electrical equipment, building materials, food & beverage, and pharmaceuticals & biotechnology fell between 5.41% and 4.57%, among the biggest decliners.
Data source: Wind. Period ending June 5, 2026.
In Hong Kong, the Hang Seng Index fell 0.88%, while the Hang Seng Tech Index rose 0.09%. The market experienced volatile declines amid a stronger US dollar and weakening domestic risk appetite.
Data source: Wind. Period ending June 5, 2026.
US markets declined last week. The Nasdaq fell 4.68%, the worst performer among the three major indices, while the Dow Jones fell 0.32%, the best. Markets weakened following the stronger-than-expected non-farm payrolls data. Looking ahead, weekend developments suggest ongoing volatility in the Middle East situation. Subsequent focus will be on the Strait's opening status and persistent overseas inflation.
Data source: Wind. Period ending June 5, 2026.
In other overseas markets, South Korea fell 3.72%, the worst performer, while Taiwan rose 0.76%, the best. Emerging markets outperformed developed markets.
Bond Market
Data source: Wind. Period ending June 5, 2026. Percentiles are based on the past 5 years.
In the bond market, credit bonds generally declined last week, with the 5Y AA category down 10 basis points, the largest drop. Government bonds saw some gains, with the 1Y Treasury and 5Y Policy Bank bond yields up 2 basis points, the largest increases. The market diverged against a backdrop of weak domestic economic data and signals of liquidity tightening from the central bank. Looking forward, recovering overseas employment data pressures inflation. Subsequent attention will be on the pace and magnitude of any oil price decline.
Data source: Wind. Period ending June 5, 2026. Percentiles are based on the past 5 years.
Regarding term spreads, spreads generally narrowed last week. The 30-year Treasury yield fell to 2.20%. Term spreads for most bond types remained within neutral percentile ranges.
Data source: Wind. Period ending June 5, 2026. Credit spreads are between credit bonds and policy bank bonds of the same maturity. Percentiles are based on the past 5 years.
Regarding credit spreads, the decline in credit bonds and rise in government bonds led to a narrowing of spreads. Historically, credit bond spreads remain at extremely low percentile levels.
Data source: Wind. Period ending June 5, 2026.
In the US Treasury market, yields rose last week, with the 2-year yield up 19 basis points, the largest increase. Bond yields climbed following the much stronger-than-expected employment data. The focus ahead is on whether the US economy can achieve a soft landing amid high interest rates and international political disturbances.
Asset Allocation Views
Central Bank Tightens Liquidity; US Employment Greatly Exceeds Expectations
Last week, the central bank conducted zero reverse repo operations on both Wednesday and Thursday. While minimal open market operations early in the month are typical, this month marked the first time operations dropped to zero, signaling a marginal tightening of liquidity. Looking ahead, boosting domestic demand remains a key policy focus. Simultaneously, export stability derived from industrial chain advantages provides some support for economic growth. Against a backdrop of significant overseas uncertainty, the economic fundamentals are expected to experience some volatile recovery. Overseas, May non-farm payrolls significantly exceeded market expectations, with an addition of 172,000 jobs versus an expected 85,000. Furthermore, upward revisions of 93,000 for March and April combined created the strongest three-month employment gain in over two years, indicating a hot labor market that poses inflationary pressure. Regarding rate hike expectations, the strong employment data has intensified them. The market-implied probability of a rate hike in 2026 has increased from 56% to 100%.
Equity Market Outlook
From a five-year percentile perspective, A-share valuations are currently at a relatively low level. The recent forward P/E for the Wind All Share Index is 19.22x, at the 98th percentile. The equity risk premium is 2.45%, at the 25th percentile. Overall market valuation percentiles are in the neutral-to-high range.
Looking forward, key allocation directions to monitor include:
1. Sectors benefiting from anti-involution policies and deteriorating global geopolitical relations, such as cyclical and upstream resource sectors, which are relatively favored.
2. Sectors related to the AI industry trend, including TMT, intelligent manufacturing, and power-related areas.
Bond Market Outlook
In the short to medium term, as property policies primarily aim to stabilize the market, a strong and sustained rebound in domestic demand remains challenging. On the other hand, China is gradually gaining initiative in global trade conflicts, supporting resilient exports. In this context, the effects of anti-involution policies have recently become more pronounced. Going forward, the bond market remains sensitive to changes in funding conditions, warranting close attention to interbank market liquidity.
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 herein represent only the research team's perspective and, under no circumstances, constitute actual investment results or any investment advice or guarantee to investors. No media outlet, website, or individual may reproduce this material without authorization.
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