Overseas Markets: Hawkish Stance Triggers External Tightening Expectations
At Friday's (2026-08-28) Jackson Hole central bank symposium, Warsh's remarks carried a distinctly hawkish tone. While he didn't directly address a September rate hike, his comments clearly prioritized "fighting inflation" ahead of employment and economic growth. This stance caused a notable reversal in the market's previously optimistic easing expectations. Looking at the actual data, July figures already hinted at inflation's resilience: despite a visible drop in CPI, the core PCE index that the Fed monitors closely held steady, remaining well above the 2% long-term target.
The hawkish rhetoric sparked an obvious "tightening trade" across major asset classes on Friday evening. U.S. Treasury yields rose, but with a clear divergence in magnitude: the 2-year yield climbed more than the 10-year, which in turn outpaced the 30-year, displaying bear-flattening characteristics. Real-rate bond yields increased more than nominal-rate bonds. Precious metals like gold and silver experienced significant pullbacks, and U.S. equities closed lower. Among major broad-based indices, the Russell 2000 suffered the steepest decline, followed by the Nasdaq, with rate-sensitive assets hit the hardest.
We believe the easing trade may continue to unwind in the near term, with the next key catalyst being September's FOMC meeting. The current downward momentum for real yields is facing obstacles, which could temporarily cap rebounds in asset classes like precious metals. Moreover, since this rate uptick appears to be driven by exogenous factors (fiscal deficits, bond supply concerns) rather than endogenous factors tied to accelerating AI investment (potential economic growth), two implications emerge. First, tech stocks that rallied sharply since March will likely face pressure from these tightening expectations. Second, because the endogenous drivers of higher rates remain weak, the market merely needs to digest the effects of earlier over-extrapolated easing expectations.
AI Sector: Investment-Chain Concerns Eased, but Long-term Return Fears Persist
Early Thursday morning, Nvidia reported earnings for Q2 of FY2027 that comprehensively beat expectations, temporarily alleviating investor worries about the AI investment demand pipeline. Infrastructure demand for AI continues to look robust. Nevertheless, this doesn't resolve the long-term return conundrum: Can future cash flows generated by AI businesses cover capital expenditures? Can rising corporate leverage among tech firms bring down the U.S. debt-to-GDP ratio?
Currently, major cloud providers like Google, Microsoft, Amazon, and Oracle are seeing cloud revenue growth that generally trails their overall capex growth, while debt expansion outpaces growth in total token output value. Post-earnings share price action reflects divergence across the U.S. AI supply chain: the Philadelphia Semiconductor Index underperformed Nvidia itself, while some storage and optical module stocks actually declined. The reason Nvidia's outsized beat failed to lift the entire chain this time is that it may merely represent a catch-up rally repairing previously pessimistic positioning. Until industry returns can convincingly accelerate, tech financing increasingly demands a accommodative environment—which indirectly suggests the industrial foundation for sharply higher U.S. real rates is lacking.
China's Property Policy Package: Signal for Medium-term Domestic Demand Recovery Amid Structural Adjustments
Friday saw multiple Chinese ministries unveil heavyweight property sector policies. At its core, the package aims to continue deleveraging property developers, shifting risk-bearing from households toward developers themselves and banks, thereby promoting healthy market development. Our interpretation: this round of coordinated policy measures doesn't directly stimulate domestic demand. In fact, it could complicate matters in the short term by disrupting the traditional pre-sale model, potentially squeezing funding sources and affecting property investment and land values. However, over the medium-to-long term, it carries significance for rationalizing domestic demand transmission mechanisms—laying groundwork for future demand-side efforts.
Since new projects must adopt completed-property sales, this could accelerate completion and inventory reduction for existing developments (potentially benefiting construction materials suppliers and some regional developers). It also reshapes the bargaining relationship between land finance and developers under the pre-sale system, essentially representing a "supply-side reform" for the property market. Combined with various financial tools to stabilize short-term debt financing capabilities, this should help property prices eventually bottom out. Additionally, transferring risk away from households while offering more mortgage flexibility expands household borrowing capacity (monthly mortgage payment-to-income ratios stay flat, but total debt-to-income rises by 5%). Longer-term, this helps reduce the crowding-out effect of mortgage payments on other consumption needs.
Investment Strategy: Adopting a Defensive Posture Amid Unclear Signals
In the current fog, the dollar's expected weakness—following the gradual deceleration of AI industry trends—has been reversed by exogenous tightening expectations. We view this as temporary. The AI industrial trend hasn't been invalidated, but the returns question remains a lingering market concern. On the domestic demand front, the signaling effect of the property policy package is substantial: long-term, domestic demand's importance is becoming evident, yet short-term trading momentum may be insufficient. Suddenly, all paths lack clear directional signals, even as future clues emerge. The market may lack obvious driving forces and a clear main theme in the coming period. A defensive posture is warranted while awaiting the next catalyst.
Our recommendations are as follows. First, on the commodities side, energy is the top pick: the chemical-energy chain—coal, oil, oil tanker shipping, and refining—will continue benefiting from global inventory replenishment demand. Copper, gold, and aluminum, as assets positioned opposite to the dollar, face only exogenous headwinds currently; timing for entry should be coordinated around the September FOMC meeting. Second, under defensive thinking, the dividend style benefits from a rotation by absolute-return investors. High-yield, low-volatility, stable cash-flow dividend assets remain the primary destination for absolute-return capital. Third, amid tightening expectations, the global manufacturing recovery must wait out near-term headwinds. Export-related assets (engineering machinery, grid equipment) retain their allocation value.
Risk Disclosure: Risks include a larger-than-expected U.S. economic downturn and any major breakthrough in AI industry trends.
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