A Week In Review: Volatility Dominates As Markets Respond To Federal Reserve's Stance

Hong Kong Stock Market

The Hong Kong stock market fell backlast weeklast week after a high, breaking through all the short-term and medium-term moving averages and the key support level of 17,500 points, indicating a weakening trend. The weaker-than-expected non-farm data and the decline in bond yields have raised market expectations for the end of the Federal Reserve's rate hike cycle. The index rose at the beginning of the week, but Powell's hawkish comments mid-week added pressure from external markets. At the same time, due to the accumulation of certain volatility gains in the previous period, the Hong Kong stock market also declined under the dual pressure of profit-taking and adjustment, and its structure is much weaker than other global markets. Looking ahead to next week, there are still opportunities for the index to test the low-level support, but the index will not form a one-sided downward trend until it breaks below 17,000 points. At the market level, under the overall pressure of the weak pattern, the space and probability of trading will decrease, and the trading volume will also decrease.

US Stock Market

Last week, the three major indexes ended a round of upward trend, mainly due to the sharp increase in market expectations for the Fed's interest rate hike later this year. Originally, after the market returned to risk appetite following the Fed's decision to continue pausing interest rate hikes in November, the index continued to gap up. However, Federal Reserve Chairman Powell stated in a speech overnight that the Federal Open Market Committee is committed to implementing a sufficiently tight monetary policy to gradually lower the inflation rate to the long-term target range of 2%. At the moment, Federal Reserve officials are uncertain whether they have taken sufficient tightening measures to achieve this goal. This has led to a simultaneous decline in the US stock market and an increase in US bond yields. Looking ahead to next week, it is expected that the market will continue to be influenced by expectations of whether the Federal Reserve will raise interest rates within the year, which may intensify the volatility of the index market.

Fixed Income Market

The hawkish stance of the Federal Reserve and the tepid demand for government bond auctions have led to a widespread rebound in US Treasury yields. Federal Reserve Chairman Powell expressed satisfaction with the progress in cooling inflation during a speech at an IMF expert panel meeting, but stated that monetary policy will be further tightened if necessary in the economic conditions. These remarks are seen as hawkish expressions, intensifying selling pressure in the bond market on Thursday. Meanwhile, the Industrial and Commercial Bank of China (ICBC) was hit by a ransomware attack earlier, which had an impact on trading in the US Treasury market. The sale of 30-year Treasury bonds cooled under the combined influence of this incident and tightening expectations, potentially exacerbating the bearish trend in the bond market.

Author: Eddid Securities and Futures Research Department

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