Hong Kong Equities Rebound, US Prepares For Possible Recession, And Bond Market Sees Dramatic Shift Amid Federal Reserve Maneuvers

Hong Kong Stock Market

This week, Hong Kong equities underwent a series of exuberant fluctuations, ascending towards the magical realm of 17,000 points, and the rebound architecture was unmistakable. The dovish cues emitted by the Federal Reserve have led to a sustained surge in US equities. Although Hong Kong stocks lack inherent impetus, they have been buoyed by a series of external stimuli, resulting in a marked improvement in their overall performance. However, the majority of market activity revolves around individual stock prices, with sector-specific market conditions remaining somewhat obscure. Looking ahead to the next week, the index holds the potential to either continue its upward rebound or experience a periodic market shock. The former may reinforce the existing trend, while the latter is primarily driven by market repair efforts. In the market sphere, the recurring rebound scenario has given rise to an upsurge in individual stocks' strength, with each stock displaying unique resilience under the shock-absorbing backdrop.

US Stock Market

The Federal Reserve's December interest rate decision implies that the threat of inflation is subsiding, and the dot matrix chart suggests that there may be three interest rate cuts in 2024. Although Federal chairman made cautious remarks, suggesting that the pace of price escalation has gradually decelerated in recent months, the unemployment rate has persistently remained at historically low levels, and economic output has demonstrated remarkable resilience. The latest Federal Reserve economic forecast indicates that the stock market is overvalued and a recession is inescapably imminent. It cautioned that the Federal Reserve's projection of a deceleration in GDP expansion next year bodes ill for the likelihood of a recession, with a probability of 90%. Based on this, the economic recession is anticipated to serve as the primary impetus for the next stage of the US stock market's evolution. The three major US stock indexes ascended steadily this week, primarily propelled by the conclusion of the interest rate hike cycle and the dramatic decrease in interest rate expectations. From the vantage point of the industry, the real estate and non-essential consumer sectors experienced a notable weekly upswing of over 5.00%. Looking ahead to the forthcoming week, an economic downturn is anticipated to intensify later, with the turbulence of the stimulus index expected to escalate.

Fixed Income Market

The Federal Reserve's unforeseen maneuvers this week ignited a chain reaction of market expectations, causing a swift and dramatic shift in the bond market's austerity narrative. A few days ago, a consortium of esteemed international investment banks, including the illustrious Goldman Sachs and the respected J.P. Morgan Chase, collectively revised their predictions for US Treasury interest rates. The US Treasury market experienced a significant surge in trading volume this week, with buoyant demand driving strong buying activity and concurrently, multi-cycle yields declined. In the realm of term structure, short-term bond yields have experienced a precipitous decline this week. The inverting of yields on two-, three-, and ten-year Treasury bonds has been alleviated, and the yield curve has become less steep.

Author: Eddid Securities and Futures Research Department

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