Last week (January 8-14), we made two judgments. Firstly, due to the release of U.S. CPI data, liquidity in foreign markets would tighten. This week (January 15-21), the U.S. Dollar Index gradually rose, climbing from 100 to about 103.3, while the yield on U.S. ten-year Treasury bonds increased to 4.12%. The NASDAQ index, after adjustments, neither broke its previous high nor retreated. The robust performance of the stock indices, despite a rising dollar index and risk-free rates, indicates that the U.S. economy remains strong. The 0.6% year-over-year increase in December consumer data significantly exceeded market expectations.
Two major international news this week included:
1) The Davos Forum, where we focused on China’s stance on high-level openness, global attention to AI development (supporting strong performance of related stocks domestically), and comments from Federal Reserve Governor Waller and ECB President Lagarde on the premature market pricing of Fed rate cuts.
2) The Federal Reserve’s Beige Book report indicated no marginal change in the economy since the last interest rate meeting, suggesting a decreasing likelihood of a U.S. recession. This report is crucial for the upcoming Fed meeting and aligns with central banks’ sentiments at Davos, demonstrating the resilience of the U.S. economy.
Domestically, our previous assessment that 2870 was the bottom of the current cycle was surpassed by reality. On Wednesday (17th), stocks dipped to 2760 points but closed around 2840 by the weekend. The market was mainly influenced by the economic data released for 2023, which included both optimistic and concerning aspects. The GDP growth rate of 5.2% met annual targets; real estate sales and service consumption showed strong performance, but there were clear negative factors as well. The average retail sales growth rate for the past two years dropped to 2.5% in December 2023, with a significant decline in goods consumption rate from November, indicating a downward trend in domestic demand expansion. The GDP growth rate for the fourth quarter was 4.0%, lower than the third quarter, showing economic softening. This report is not good news for the stock market and challenges our previous bottom-line assumption. Looking forward, we remain cautious about the stock market, considering upcoming Federal Reserve interest rate meetings and end-of-month PMI data.
Despite overall market softness, the big four state-owned banks’ stock prices remained strong, showing a fluctuating upward trend. Joint-stock banks like China Merchants Bank recovered after a significant drop. AI-related stocks also performed well, reflecting continued high demand for shares of excellent companies. Additionally, affected by weak Chinese data and tightening U.S. dollar liquidity, there seems to be no bottom for the Hang Seng Index’s decline.