The Hong Kong stock market experienced a continued decline last week. This was due to a multitude of negative news and pressures in the market. Factors such as the double blow of stock and bond prices of Country Garden, and anti-corruption in the pharmaceutical industry, led to an overall market weakness. This was further characterized by a pattern of decline on low trading volume.
Additionally, the sluggish macroeconomic data in the mainland further dragged down the capital acceptance and enthusiasm. Consequently, the index once again returned to around 19,000, falling for the second consecutive week. Looking ahead to next week, there will still be some pressure at the index level. Whether it can hold steady at 19,000 points will have a significant impact on the short-term index structure.
At the market level, without positive stimulation, the market will present a certain weak pattern. The acceptance and speculation of individual stocks will be greatly discounted.
U.S. stock market
This week, the three major stock market indexes in the U.S. opened high and closed low. The Nasdaq fell by 1.23%, the S&P 500 fell by 0.21% and the Dow Jones rose by 0.32%. In terms of sectors, only the energy sector rose by more than 2%. This may be mainly due to the uncertainties in economic expectations.
The latest data shows that the seasonally adjusted CPI in the U.S. increased by 3.3% year over year in July, slightly lower than market expectations. The core CPI increased by 4.7% year over year, in line with expectations. This indicates that in the core service sector, the inflation level is still sufficient to support market expectations of a rate hike by the Federal Reserve later this year.
Meanwhile, global oil prices rebounded under tight supply and demand, indirectly supporting core CPI and even the PCE inflation indicator targeted by the Federal Reserve afterwards. Looking ahead to next week, it is expected that the risk of "second-round inflation" will become the market's focus. Currently, the index is falling back from its high level and may face intensified volatility in the future.
Fixed income market
In July, U.S. inflation rebounded slightly under the push of energy and housing costs, but the magnitude was weaker than expected. This consolidated the market's anticipation of the Federal Reserve's pause in interest rate hikes. Although the yield on U.S. Treasury bonds briefly declined after the release of the data, the dismal results of the U.S. Treasury bond auction later dominated the bond market, causing the bond yields to almost universally rise.
The winning rate for the long-term 30-year bonds in this large-scale auction reached the highest level in nearly a decade. This indicates weak demand for long-term bonds and suggests that the market may struggle to absorb the issuance of large-scale new bonds. Given the persistently high level of the U.S. government's deficit since the first half of this year, the momentum of large-scale issuance of Treasury bonds is likely to continue. In terms of maturity structure, yields across multiple periods rose simultaneously this week, with significant increases in the yields of five-year and seven-year Treasury bonds, leading to a flattening yield curve.
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