Macroeconomic Overview
1.Policy Trends
The Federal Reserve is on the sidelines: CPI slightly exceeded expectations, PPI fell short, and internal views diverged. The debate over whether to fire Powell intensified, renewing challenges to the dollar's independence.
China's stimulus policies continue: anti-involutionary policies deepen, and the Ministry of Industry and Information Technology refines policies to optimize industry capacity and prices. The State Council meeting focused on boosting domestic demand and consumption, focusing on new productivity and emerging service industries.
2.Economic Fundamentals
Domestic:
Ø Social financing and monetary data exceeded expectations, with significant expansion in credit and liquidity. During this period, special government bonds played a significant role in providing a bottoming-out policy, reflecting the effectiveness of policy support and the recovery of credit in the real economy. However, there has been no significant improvement in financing for businesses and individuals. The economy remains supply-driven, while demand-side recovery remains to be further verified. Overseas: Ø US job creation is stable, and the unemployment rate remains low. The CPI rose to 2.7% in June, indicating resilient inflation. The economy is experiencing a "soft landing": the job market is stable but slowing, consumption is stronger than expected, and inflation transmission is becoming increasingly apparent. Ø Market expectations: "Inflation is the bottom line, and weak employment is the trigger." Continued high inflation will not be solely due to economic slowdown; if consumption and employment decline significantly, the window for interest rate cuts may be brought forward.
3.Other Important Events
US Push for SLR Relaxation and High Tariffs: Trump is pushing for easing bank SLR regulations and registering a new round of export tariffs on multiple countries. Fiscal expansion and regulatory easing suggest a continuation of the policy mix.
Geopolitical Dynamics in Europe and the Middle East:Europe's tariff retaliation against the US and the situation in the Middle East may continue to disrupt the oil market and European bonds in the short term, leading to diverging performance between the two asset classes.
Investment Key Points and Major Asset Class Strategies
1.Interest Rate Bond Market Analysis
Last Week's Review:Bond yields fluctuated overall, with the yield curve steepening. The 10-year yield initially fell and then rose, reflecting: ①The central bank's clear intention to protect funds; ②The impact of the tax season on the liquidity situation gradually weakened; ③The fundamental data and discussions did not significantly exceed expectations; ④The bond market remained under pressure due to the seesaw between stocks and bonds.
Institutional Behavior:Due to the previous sharp decline in funding rates, institutions increased leverage to compress credit spreads and exploit the yield spread between new and existing bonds. This led to relatively high trading congestion, increased sensitivity to negative news, and further exacerbated bond market volatility.
Next Week's Outlook: Funding will become marginally looser, and the political game at the Politburo meeting may intensify. Watch for trading opportunities amidst the seesaw between stocks and bonds.
Overall Bond Market Environment:Low visibility in the external macroeconomic environment + slow recovery in domestic demand + ongoing monetary easing + negative impacts from significant improvement in fundamentals have yet to materialize → Overall, the market remains bullish.
Low yields constrain downside potential + limited flexibility at the current 1.67% level amidst a marginal rebound in risk appetite → Short-term volatility is significant.
2.Credit Bond Market Analysis
Domestic: The central bank continues to inject large amounts of funds to support liquidity, and easing interest rates are positive for credit bonds. Credit bond yields are generally declining, and the shortage of interest-bearing assets is intensifying. Trading sentiment remains favorable, and institutions may moderately reduce their qualifications and increase leverage.
Offshore (Chinese Dollar Bonds):Overall trading sentiment weakened, secondary market capacity decreased, and primary market sentiment for new issuances cooled. The expansion of the investor base for the Southbound Connect has boosted market activity and liquidity. Valuations of Chinese offshore bonds have risen rapidly since May, correcting previous deviations. Although current market yields are generally low, early holders can benefit from valuation appreciation in this round.
3. A-Share and Hong Kong Stock Market Analysis
A-Shares: saw a slight increase, with stable trading volume, reflecting structural activity but a steady overall pace. This period was primarily driven by the banking sector, with other sectors showing no significant strength. There are no clear drivers of improvement in fundamentals, and the market is still experiencing an improvement in risk appetite driven by policy expectations. Market liquidity also remains accommodative under policy support. The expansion of RMB loans is driving liquidity, and the recovery of bank and real estate-related credit is fueling capital inflows. Risk Points: The spot basis of the CSI 1000 futures remains high, with neutral strategies reaching new highs. Small and medium-sized stocks remain vulnerable, so be wary of a pullback. Hong Kong Stocks: The HK50 has seen strong gains, with the index reaching a new high. Hong Kong stocks exhibit the following characteristics during this period: First, net capital inflows from mainland China; second, sustained policy expectations, with new Shanghai and Shenzhen policies activating the market and northbound capital shifting its focus to Hong Kong stocks; and third, strong IPO activity is boosting market vitality and participation. Recently, technology stocks have performed the best. New funds and the "fast entry mechanism" have contributed to increased short-term volatility, but short-term overheating should be avoided. Overall: A-shares and Hong Kong stocks are driven by policy dividends and capital flows, and their medium- and long-term fundamentals are positive. A-shares have greater policy and macro liquidity support, while Hong Kong stocks have greater resilience (capital inflows and IPOs). Caution is required regarding currency, policy, and geopolitical fluctuations, with stop-loss orders and position management.
Opportunities to Watch: Valuation reassessments of leading industry players amidst the "anti-involution and capacity reduction" campaign; certain opportunities in the military sector.
4.Convertible Bond Market Analysis
A-shares: A-shares maintained their upward trend this week, with ample liquidity, and small-cap stocks continued to outperform large-cap stocks.
The external environment was relatively stable. The United States issued new tariff notices to most trading partners (excluding China). As part of the Geneva agreement between China and the United States, the US Department of Commerce verbally agreed to allow Nvidia to continue exporting H20 chips to China. Treasury Secretary Benson hinted that the tariff suspension period (August 12) could be extended. Compared to other US trading partners, China and the United States are currently in a relatively friendly phase. The relatively stable external environment has increased risk appetite for A-shares.
Convertible Bond Market Status: In terms of valuation, convertible bond prices continued to rise, but valuations remained relatively low. As of the close of July 17th, the median price was 126.82, up further from 125.81 last Friday. The median YTM was -3.24%, and the median pure bond premium was 19.82%.
-Conversion premium: 27.38%, similar to last week, near a four-year low.
-Liquidity: Both underlying stocks and convertible bonds remained ample.
-Daily trading volume of A-shares ranged from 1.46 trillion to 1.64 trillion yuan, with the average trading volume significantly higher than last week's 1.22 trillion to 1.74 trillion yuan.
-Daily trading volume of convertible bonds ranged from 69.9 billion to 76 billion yuan, with the average trading volume similar to last week.
- Product Trading Plan: Prioritize profit-taking on inflated stocks, and slightly increase positions in value-for-money stocks.
5.Commodity Market Analysis
Domestic: Continuing the "policy expectations + marginal economic improvement" trend. GDP grew by 5.3% in the first half of the year, and industrial value added increased by 6.8% in June, exceeding expectations. Policies focused on "structural adjustment + capacity reduction" (new urbanization and key industry growth stabilization plans), benefiting traditional industrial products such as steel, cement, and glass. The expectation of supply-side liquidity clearance has driven valuation recovery. Solar silicon material volatility has intensified, with speculation surrounding the timing of policy implementation following initial high sentiment. However, social financing data indicates that household financing demand remains weak, with a pronounced end-of-season rush in corporate short-term loans. Actual demand support remains insufficient. If policy expectations fall short of expectations, related sectors may face greater volatility.
Overseas: The US CPI was moderate in June, but prices for goods and services rose. The impact of tariffs on inflation remains to be seen. Internal divisions within the Federal Reserve are intensifying, and the debate over whether Powell should stay or go is adding to uncertainty. Gold prices are fluctuating and consolidating, with the impact of copper tariffs becoming apparent, and are currently in a period of volatile digestion. The non-US copper distribution chain is disintegrating, and pricing power may shift towards the demand side.
6.Analysis of Overseas Asset Markets
US Treasury Bonds:
- Current Situation: US economic data exceeded expectations, and the confrontation between the Trump administration and Powell continues. US Treasury yields have continued to experience high volatility, with yields surging again, accelerating the steepening of the yield curve and weakening the US dollar.
- Outlook: Disruptions have resolved, and negative factors are easing. A September rate cut remains highly likely. Therefore, any pullback in US Treasury bonds presents buying opportunities.
- Risk Warning: This week, Japan again highlighted the long-term supply and demand imbalance in developed market interest rates, a significant risk that cannot be ignored.
Japanese Government Bonds:
- Market Performance: The roller-coaster ride of the Japanese Government Bond (JGB) term structure is becoming the norm.
The main reason for the recent volatility: Nervousness surrounding this weekend's House of Councillors election initially caught the market off guard, leading to sharp steepening pressure. Participants quickly priced in concerns about fiscal expansion amid growing concerns about the ruling Liberal Democratic Party-Komeito coalition's potential defeat.
- Monetary Policy Expectations: The election results are expected to have a limited impact on Bank of Japan (BOJ) policy, with the next rate hike still expected after the Bank of Japan's branch managers' meeting in January 2026.
The content of this article represents only the analytical views of our investment research team and does not represent the authoritative views of any institution. The data and information herein do not constitute investment advice and are for reference only.
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