The focus of global markets last week was undoubtedly on President Xi Jinping's state visit to the United States and the surge of U.S. Treasury yields to a new high since the financial tsunami. First, during this meeting between the leaders of China and the U.S., Trump received President Xi with unprecedented high-level protocol, reflecting not only the importance placed on China but also highlighting that the U.S. still heavily relies on communication and cooperation with China on key issues such as global governance and regional security. As the world's two largest economies, the harmonious atmosphere between the leaders acts like a "stabilizing force" for the world, bringing positive news for the global economy and trade.
On the other hand, the yield on the U.S. 10-year Treasury bond rose above 5.2% last week, reaching the highest level since the 2008 financial crisis. This was primarily due to the U.S. September PMI services index exceeding expectations, which heightened market expectations for further rate hikes by the U.S. Federal Reserve before year-end. I have previously elaborated multiple times on the underlying logic behind persistently high U.S. bond yields. However, if inflation remains uncontrolled, it will indirectly push up borrowing costs across the board, and the negative impact on the economy will gradually emerge. Moreover, U.S. federal debt has reached $40 trillion. Although the Treasury has increased buybacks of long-term bonds, it has failed to stop yields from rising. As risk-free returns continue to climb, equity risk premiums are compressed, and high-valuation tech stocks and AI sectors will be hit first.
As I mentioned earlier in this column, the current U.S. stock market is constrained by the "triple-high" structure of high bond yields, high valuations, and high political uncertainty. The market is still able to move upward mainly because of earnings support from major AI companies. However, the U.S.-Iran situation will become a significant variable for the market's future direction. If the two sides reach a genuine broad agreement, the Strait of Hormuz could be unblocked, causing oil prices to drop rapidly, removing the need for the Fed to continue raising rates. Conversely, if the conflict persists and oil prices remain high, interest rates will find it difficult to fall, and the stock market will face substantial correction pressure.
Looking ahead, the Hang Seng Index hit a low of 24,275 points last Friday (25th), breaking below the low of 24,357 points on September 17. However, the closing decline narrowed significantly, ultimately closing at 24,510 points, indicating strong support around the 24,200 level. Nevertheless, the macro situation is complicated, and geopolitical uncertainties remain, meaning Hong Kong stocks will inevitably be influenced by external factors. In summary, after the corporate earnings season and the Xi-Trump meeting, market trading themes will focus on the U.S. midterm elections in November and whether the Federal Reserve will raise rates again on October 29. Therefore, changes in the U.S.-Iran situation will become a crucial factor for the market's future direction. Simon Siu, Director of Sun Hung Kai Securities Investment Services
*Articles signed and/or unsigned published in ET Net represent the authors' personal opinions and do not reflect the stance of ET Net. ET Net plays the role of providing a free speech platform.
On the other hand, the yield on the U.S. 10-year Treasury bond rose above 5.2% last week, reaching the highest level since the 2008 financial crisis. This was primarily due to the U.S. September PMI services index exceeding expectations, which heightened market expectations for further rate hikes by the U.S. Federal Reserve before year-end. I have previously elaborated multiple times on the underlying logic behind persistently high U.S. bond yields. However, if inflation remains uncontrolled, it will indirectly push up borrowing costs across the board, and the negative impact on the economy will gradually emerge. Moreover, U.S. federal debt has reached $40 trillion. Although the Treasury has increased buybacks of long-term bonds, it has failed to stop yields from rising. As risk-free returns continue to climb, equity risk premiums are compressed, and high-valuation tech stocks and AI sectors will be hit first.
As I mentioned earlier in this column, the current U.S. stock market is constrained by the "triple-high" structure of high bond yields, high valuations, and high political uncertainty. The market is still able to move upward mainly because of earnings support from major AI companies. However, the U.S.-Iran situation will become a significant variable for the market's future direction. If the two sides reach a genuine broad agreement, the Strait of Hormuz could be unblocked, causing oil prices to drop rapidly, removing the need for the Fed to continue raising rates. Conversely, if the conflict persists and oil prices remain high, interest rates will find it difficult to fall, and the stock market will face substantial correction pressure.
Looking ahead, the Hang Seng Index hit a low of 24,275 points last Friday (25th), breaking below the low of 24,357 points on September 17. However, the closing decline narrowed significantly, ultimately closing at 24,510 points, indicating strong support around the 24,200 level. Nevertheless, the macro situation is complicated, and geopolitical uncertainties remain, meaning Hong Kong stocks will inevitably be influenced by external factors. In summary, after the corporate earnings season and the Xi-Trump meeting, market trading themes will focus on the U.S. midterm elections in November and whether the Federal Reserve will raise rates again on October 29. Therefore, changes in the U.S.-Iran situation will become a crucial factor for the market's future direction. Simon Siu, Director of Sun Hung Kai Securities Investment Services
*Articles signed and/or unsigned published in ET Net represent the authors' personal opinions and do not reflect the stance of ET Net. ET Net plays the role of providing a free speech platform.
