This week, global markets experienced widespread declines, with bond yields remaining stable but fluctuating slightly, while precious metals hovered at elevated levels. Over the past two weeks, global equity prices have shifted from stagnation to rapid pullback, with market rotations happening swiftly. AI-related stocks were hit particularly hard. Several factors may explain this: from the retreat of carry trade funds to profit-taking from short-term gains, and the sharp rise in VIX volatility indicating risk aversion ahead of next week’s key events and data releases.
Looking forward, the upcoming week is pivotal in several aspects.
First, the tech industry. Apple is set to unveil its highly anticipated AI-integrated iPhone 16 on September 10. The launch will test whether incorporating AI into consumer electronics can deliver a game-changing product. While Huawei is also slated to release new products on the same day, AI remains the focal point on the global stage. If AI becomes seamlessly integrated into smartphones, it could trigger a massive upgrade cycle and accelerate AI adoption rates. Should the launch succeed, stocks related to AI infrastructure—such as computing power, software, and energy sectors—are poised for further gains. However, a potential roadblock lies in China, where AI’s inability to be fully deployed locally might limit iPhone 16’s success in this crucial market.
Second, U.S. political developments. The first debate between Donald Trump and Kamala Harris will take place on September 10. Both candidates have starkly opposing economic policies, creating heightened uncertainty around inflation and interest rates. This divergence could fuel a rise in market volatility in the week following the debate, as investors digest the policy signals. Given Trump’s staunch advocacy for a low-interest-rate environment, monetary policy is likely to become a focal point. Trump’s strategy to curb inflation through lower energy prices and steep tariffs—creating a price differential between domestic and foreign energy—could, in theory, offer inflation control.
Third, economic data. On Friday, U.S. unemployment data showed a better-than-expected decline to 4.2%. Next week will bring the final CPI report before the FOMC meeting, which could significantly influence market expectations. If inflation shows a smooth downward trend, the odds of a 50-basis-point rate cut by the Federal Reserve will increase. With low unemployment and declining inflation, the Fed will have ample flexibility in its monetary policy decisions, no longer facing the pressure of a delicate balancing act. The upcoming Q3 GDP data, set to be released before the November FOMC meeting, could further bolster confidence in the U.S. economy’s growth prospects. Currently, discussions around the “neutral rate” of interest are crucial, as it will determine the Fed’s long-term rate-cut path, though this remains subject to the uncertainty of the U.S. political cycle.
In conclusion, these uncertainties have dampened bullish sentiment among investors. However, the stability of inflation expectations, low unemployment, and steady economic growth will gradually alleviate concerns, creating a more favorable environment for equity prices to rise. This sentiment is reflected across other asset classes as well: despite the rapid pullback in equities, gold prices have not surged, nor have bond prices fallen significantly.