I. Performance and Valuation of Global Equity Indices
Data Sources: Bloomberg, Tiger Asset Management
Key Highlights
◼ Last week, global capital market sentiment remained strong. Both the S&P 500 and Nasdaq in the U.S. set new all-time highs, rising 1.75% and 1.5%, respectively, in a single week. In addition, driven by policies to curb involution, the steel, photovoltaic, and other sectors in Mainland China surged collectively, directly pushing the CSI 300 and Shanghai Composite Index up by over 1%. In contrast, the Hong Kong Hang Seng Index and the Tech Index performed weakly, both experiencing declines to varying degrees.
◼ Last week, the U.S. employment data for June was very strong, with both non-farm payrolls and the unemployment rate significantly outperforming market expectations, causing the probability of a rate cut in July to drop to nearly zero. However, this does not mean the U.S. economy has safely landed. From the data, although employment remains robust, wage growth has begun to weaken. According to Powell’s outlook, the impact of inflation is already on the way. Furthermore, last week, the U.S. fiscal and tax reform bill was officially signed into law, signaling the opening of a period of fiscal expansion for the U.S. over the coming years. Meanwhile, U.S.-Vietnam tariff negotiations have reached a conclusion, but there are still significant differences in U.S.-Japan negotiations. Over the next month, tariffs will remain a key focus for Trump, and continued pressure may lead to increased market volatility. In this context, while we remain cautious of risks, we continue to maintain an optimistic outlook.
◼ This week, key focuses include the Federal Reserve minutes and the development of tariff extensions.
II. Key Market Themes
U.S. Stocks: Cautious of Risks, Yet Optimistic
Last week, U.S. stocks continued the recent upward momentum, with the S&P 500 and Nasdaq pushing to new historical highs. On the macro front, several data points were positive, with no major surprises. First, the June ISM PMI exceeded market expectations for both manufacturing and services, with notable improvements from the previous readings.
In addition, June’s employment data was also very strong. Non-farm payrolls increased by 147,000, significantly surpassing the market expectation of 110,000, and the previous month’s data was revised upward by 5,000. Meanwhile, the unemployment rate stood at 4.1%, notably lower than both the prior value and market expectations. However, despite these seemingly flawless employment figures, there are underlying risks. Firstly, while the overall increase in employment was substantial, half of the increase came from government hiring, which rose nearly tenfold compared to the previous month! In contrast, private sector job growth sharply declined from 137,000 last month to less than 80,000. Secondly, although employment numbers remain strong, wage growth has begun to lose momentum, rising by just 0.2% month-on-month, lower than both the previous value and market expectations. This aligns with the weaker personal income and expenditure data for May, indicating that the impact of tariffs is beginning to show.
Undoubtedly, this data shows that the U.S. economy is more resilient than expected. However, such strong data essentially rules out a rate cut in July, with the probability of a rate cut in September now dropping below 70%. The final outcome will depend on inflation data, and according to Powell, next week’s inflation data will reflect the impact of tariffs.
Data Sources: U.S. Bureau of Labor Statistics, Bloomberg
In addition to macro data, there were significant developments in fiscal policy last week. Trump’s heavily pushed "America First" tax and fiscal bill narrowly passed the Senate and was signed into law by the president on July 4. Overall, this bill is an extension and upgrade of the "Tax Cuts and Jobs Act" from the Trump 1.0 period. It mainly consists of several parts: tax cuts, spending reductions, increasing the debt ceiling, and raising defense spending. In the short to medium term, fiscal expansion has become a certainty, which will be positive for the capital markets. However, in the long term, U.S. debt levels will rise further, and the U.S. government’s credit risk will also increase. This has already sparked dissatisfaction from Musk, who even publicly stated over the weekend that he would form a third political party in the U.S. Moreover, the bill primarily cuts taxes for high-income individuals while reducing benefits for low-income groups, which limits its potential impact on overall consumer spending.
At the same time, there was a breakthrough in tariffs as U.S.-Vietnam tariff negotiations reached a conclusion. According to Trump’s social media posts, the U.S. tariff on Vietnam was reduced from the initial 46% to 20%, but a 40% tariff was imposed on re-exported goods. Additionally, the Vietnamese market has been fully opened to the U.S., including purchasing more Boeing aircraft and other U.S. goods. Overall, this outcome was somewhat unexpected, and rather than a win-win collaboration, it appears more like a unilateral victory for the U.S. Furthermore, with the Vietnam case settled, other Southeast Asian countries are likely to face similar negotiation results. While the issue of re-exported goods was officially raised, its actual implementation still has much ambiguity. This week marks the deadline for the 90-day tariff exemption, and while an extension is certain, it is possible that Trump may again apply pressure on more "difficult" countries during the extension. Considering the tax cuts have already passed, Trump’s team now has ample time and resources for tariff negotiations.
Since the announcement of tariff exemptions on April 9, U.S. stocks have experienced a strong rebound, with the S&P 500 and Nasdaq rising by 26% and 33%, respectively, over nearly 60 trading days. At the current level, we believe that the macro environment remains favorable. This week, apart from the Federal Reserve minutes, there are no major macroeconomic data releases. However, with the tariff exemption deadline and the inflation data release approaching, market volatility could increase, and some investors may choose to take profits to avoid uncertainties. Historically, the average return for the S&P 500 in the third quarter has also been relatively low. Therefore, while we remain cautious about potential pullbacks, we continue to maintain an optimistic outlook.
Data Source: Tiger Asset Management
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