Recent Review of Macroeconomic Market Hot Topics

Positive Macroeconomic Background

In the past two months, inflation has cooled significantly, showing a clear downward trend. The U.S. CPI in June turned negative month-on-month for the first time in four years, and the core year-on-year growth rate hit a more than three-year low. Housing inflation is accelerating its slowdown. The job market has softened slightly, but overall it remains in a relatively balanced and stable state. The economic surprise index is at a low point, indicating that recent economic data has fallen below expectations more often. The financial conditions index shows a continued easing trend, the most accommodative since the end of 2022.

These backgrounds are favorable for the risk asset market, as investors expect the Federal Reserve to take action to support economic expansion. With the weakening of the dollar and the Fed starting to cut interest rates, emerging markets and cryptocurrencies may benefit, provided that a recession does not occur. If the expectation of a soft landing turns into a hard landing, it may be necessary to quickly shift from equity risk assets to bonds.

Q2 earnings report season pressure is relatively high

The current market focus is on the earnings season that has begun. The market is very optimistic about the earnings expectations for this quarter, but there may be challenges in achieving the same level of surprises as before. Wall Street expects the Q2 earnings of the S&P 500 to grow by 8.9% year-on-year, significantly higher than last quarter's 5.9%.

From the short-term market reaction in the first quarter, the rise in stock prices due to good news is not as great as the fall in stock prices due to bad news. The average increase in stock prices for companies with EPS exceeding expectations is slightly lower than the five-year average, while the average decline in stock prices for companies falling short of expectations is slightly greater than the five-year average.

The market has begun to question the profitability of AI. As big tech stocks emerge from the performance low of 2022, the likelihood of other companies maintaining strong performances post-earnings reports is decreasing, except for some hardware companies. A better outcome would be a shift from the Mag7 sector to other sectors, or a change in the focus of speculation from AI to other tracks.

Boeing Pleads Guilty Case Reached Settlement

Boeing has agreed to plead guilty in two criminal cases related to the 737 Max and will face fines of up to $487.2 million. The company also needs to invest heavily in compliance and safety, and accept independent oversight. From an investment perspective, this represents that Boeing's negative news has been fully released, which is a good thing for valuation recovery.

Changes in Expectations for the U.S. Election

The derivatives market is very pessimistic about Biden's chances of winning, with the predicted market probability of Trump's victory rising from 40%-50% at the beginning of the year to about 60%. The probability of the Republican Party winning both the House and Senate as well as the presidency has also increased, currently at about 50%.

Institutional investors' focus is shifting from growth and monetary policy to politics. Attention is centered on the tariffs that Trump may implement, domestic tax policies, and regulatory changes. Trump's rise to power could push inflation higher, contradicting the Federal Reserve's intentions to cut interest rates.

The Republican Party's significant victory may lead to an extension of tax cuts and increased government spending, which would directly benefit stocks. The industries most affected by policy changes include energy and technology.

Global Impact of Changes in the Chinese Economy

China is in a state of deflation, exporting deflation as the world's largest commodity exporter. This contributes approximately 0.1 percentage points to the decline in core inflation rates in Europe and the United States, potentially providing more room for interest rate cuts by central banks in these regions this year.

China holds a significant market share in several key export products, including traditional manufacturing and high-tech sectors. For many years, China has adopted an investment-driven economic growth model, with fixed capital investment accounting for a significantly higher proportion of GDP than consumption expenditure. This model may lead to overcapacity.

Cryptocurrency Market Dynamics

The risk-return ratio of Bitcoin has been significantly lower than that of the US stock market this year, which is rare in history. The main reason is the unexpected sharp decline in the past month.

RWA( Real World Assets ) are steadily developing in the field. BlackRock BUIDL has launched less than four months ago and already holds tokenized government bonds worth $502.8 million. MakerDAO plans to invest $1 billion of its reserves into tokenized U.S. Treasury products.

Market Capital Flow and Sentiment

The short selling ratio of U.S. stocks slightly increased in June, approaching the highest level in four years, but the overall level is still not high.

This week, northbound funds of the large A-share market net purchased 15.9 billion yuan, marking the highest level in 11 weeks and reversing a trend of net selling for four consecutive weeks.