To The Moon

Performance of Global Equity Indices(in US Dollar)

• Last week, overall market sentiment continued to improve, with Greater China's Hang Seng Tech Index surging over 5%, leading all major global equity assets. U.S. stocks also extended their rebound, achieving an impressive nine-day winning streak. The S&P 500, Nasdaq 100, and Russell 2000 all posted weekly gains of around 3%. In contrast, China's A-shares remained relatively independent, neither following the global sell-offs nor the rallies.

• Last week saw the release of a slew of macroeconomic data, which, despite some volatility, ended largely without incident. Initially, U.S. Q1 GDP unexpectedly turned negative, triggered by a surge in imports, sparking momentary market panic. However, the March Core PCE came in flat (0% growth), and non-farm payrolls far exceeded expectations, pulling the market back from stagflation fears. Additionally, tech giants like Microsoft and Google released earnings reports, both reaffirming their strong commitment to AI investments.

• Key focus this week is whether tariff negotiations will yield results and Powell's statements at the FOMC meeting.

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Key Market Themes

U.S. Stocks: A Fragile Rebound Amid Macro Turbulence

• Over the past week, U.S. equities saw consecutive gains, appearing stable on the surface but in reality treading on thin ice. Markets navigated through a super macro week and a super earnings week that delivered significant shocks. On April 30, the initial estimate for U.S. Q1 GDP came in at a staggering -0.3%, far below the market expectation of 0.3%. Simultaneously, the quarterly PCE preliminary figure surged, showing a year-over-year increase of 3.5%, exceeding both prior values and forecasts. This triggered a sharp shift in market sentiment, sparking fears of recession and even stagflation. The Nasdaq dropped over 2% intraday as panic spread. However, the situation was somewhat stabilized when the monthly Core PCE data was released, showing 0% month-over-month growth, well below the previous reading and slightly under expectations, which helped contain the panic.

• Moreover, investors soon identified the main culprit behind the GDP decline: a surge in import activity driven by tariff concerns. A breakdown of the data showed that net exports alone dragged GDP down by nearly 5%, more than the combined contributions of government spending and consumer consumption. According to CICC estimates, when stripping out the effects of net exports and inventory buildup, the real GDP growth for Q1 would be around 2.48%, nearly in line with the previous 2.4% reading. This revelation eased fears, as markets began to understand that the GDP data did not necessarily imply an imminent U.S. recession.

• Two days later, the release of strong non-farm payroll data further reassured investors. In April, the U.S. added 177,000 jobs, not only beating consensus expectations but also exceeding the highest forecasts from major banks. Additionally, the household survey measured the unemployment rate at 4.2%, aligning with market expectations. More surprisingly, average hourly earnings rose by 3.8% year-over-year, slightly lower than expected. Combined, these data points reflect that the U.S. economy, while cooling, still shows substantial resilience, far from signaling a downturn. These solid numbers perfectly aligned with Powell's earlier assessments, leading markets to push back rate cut expectations. As it stands, the probability of a June rate cut has fallen below 50%, with July now widely seen as the earliest potential cut.

• Although rate cut expectations have been pushed back, market sentiment has noticeably improved. On one hand, the market fears an unanticipated recession far more than a slightly delayed rate cut. On the other hand, strong employment data provides more breathing room for tariff negotiations. As described in previous Weekly Insights, the main narrative remains centered on tariffs, while inflation and employment are largely reflections of tariff policies. In other words, if inflation or employment data comes in much worse than expected, the market panics and sells off; but if the data is exceptionally strong, it merely eases anxiety without sparking any sustainable rally.

• On another note, last week’s tech giant earnings brought some positive surprises, with Microsoft's results and guidance standing out the most. From a numbers perspective, revenue hit $70.07 billion, with EPS of $3.46, both exceeding market expectations. Furthermore, the highly-watched Azure cloud revenue grew by 33% year-over-year, with 16% attributed to AI demand, also surpassing Wall Street's forecasts. According to Microsoft’s management, AI demand remains robust, and data center supply is currently tight. They also denied rumors of overinvestment, asserting that there will be no cuts to original capital expenditure plans. The next day, Microsoft's stock surged over 9%, pulling the entire AI supply chain up with it.

• Overall, whether it’s macroeconomic data or earnings guidance, this wave of uncertainty passed without major incident. However, this does not change the inherent fragility of U.S. equities. Fundamentally, the ongoing tariff negotiations remain the core issue. Although Trump and his advisors have repeatedly expressed optimism, there have been no formal agreements reached with any country so far. Meanwhile, the market has rallied ahead of tangible results, and if tariff negotiations fail to deliver positive outcomes, hope could quickly turn to disappointment.

• In addition, several Asian currencies have recently experienced unusually sharp surges against the U.S. dollar. The New Taiwan Dollar (NTD) led the pack, climbing nearly 10% in just two days. Although Taiwan's officials have denied rumors that the U.S. requested its appreciation, we believe that such a dramatic spike over such a short period is unlikely to be purely market-driven. A more plausible scenario is that there is deliberate intent at the official level, followed by coordinated, rapid action from major market players, including Taiwanese insurance funds. We will closely monitor further developments on this matter.