This week witnessed a major shift in both domestic and international policy landscapes.
I. U.S. Policy: Trumponomics 2.0 Taking Shape
The economic doctrine of the current Trump administration is becoming increasingly clear:
Tax cuts at home, tariffs abroad, lower interest rates, and a weak dollar.
On Thursday (Beijing time), the “One Big Beautiful Bill Act” narrowly passed the House by a margin of four votes. This bill represents the centerpiece of Trump’s domestic tax reduction efforts. Although it is likely to push up the fiscal deficit in the short term, the magnitude of the tax cuts could drive a significant wave of corporate investment or share buybacks—similar to what happened during Trump’s first term.
Markets responded promptly: the Nasdaq surged for two consecutive days, setting new record highs. Since Trump’s return to office in March, the Nasdaq had seen a peak-to-trough correction of nearly 20%. With this week’s rally, those losses have been fully erased. Based on technicals and policy momentum, U.S. equities may be poised for an additional 5–10% upside.
The uncertainty surrounding Trump’s economic policy is beginning to fade. However, a major wildcard remains—the interest rate trajectory. Should tariffs be adjusted next week, this could reshape long-term expectations for rate cuts. Indeed, the case for a rate cut within 2025 is strengthening, and market resistance to a broad-based rebound is gradually weakening.
Tariff policy is now front and center. As tariff measures are finalized and data begins to flow, the only meaningful brake on U.S. equity markets will likely be inflation-related pressures.
II. The Rise of Besant: The Shadow Fed Chair?
In global markets, one figure is emerging as central: Treasury Secretary Besant—referred to by insiders as “the only adult in the room.”
Following the sharp global market correction post-March, Besant’s handling of tariff negotiations has been instrumental in restoring investor confidence and supporting market rebounds. His influence has grown so significantly that some now see him as the de facto shadow chairman of the Federal Reserve.
Besant recently stated that the appointment of a new Fed Chair would begin this fall. The mere suggestion—unthinkable in past administrations—that a Treasury Secretary could have such sway over the Fed highlights the growing power consolidation in Washington. While dual appointment may not materialize, Besant’s public remarks already wield substantial influence over market expectations.
After all, the Fed Chair’s greatest power lies in managing forward guidance. If the Treasury Secretary holds de facto authority over the Fed’s leadership, his words carry even greater market-moving weight.
III. China: Capacity Reduction Meets Market Consolidation
Domestically, China is advancing two key structural policy directions:
The National Unified Market Initiative held its latest coordination meeting this week.
New capacity reduction policies targeting sectors like photovoltaics, autos, and cement were released on Friday.
Markets responded positively, especially in steel and solar sectors. The steel index has gained for three consecutive days. The solar segment also rebounded, albeit with high volatility.
Historically, China has experienced three major periods of PPI deflation, all of which ended with state-led capacity reduction. This round appears no different. While the current policy rhetoric emphasizes market unification, the real challenge lies in establishing mechanisms to override local government interests, which remains a core execution risk.
Moreover, this round of capacity cuts is unfolding in a structurally different demand environment. In past cycles, investment offset demand shocks—via real estate in the first round and infrastructure in the second. This time, there is a lack of a clear investment anchor. Although there is speculative enthusiasm in semiconductors and humanoid robots, their current scale is insufficient to drive a broad-based recovery in heavy industry. As a result, steel sector profit recovery is likely to be slow and constrained.
With demographic pressures mounting, capacity reduction could become a prolonged structural policy, rather than a cyclical measure.
IV. Domestic Equity Market: Policy Support in Action
The A-share market has broken above the 3,450 level, thanks largely to domestic capital support, with banks playing a stabilizing role. Policymakers are actively working to channel long-term capital into the market while simultaneously encouraging retail investor participation.
Traditional sectors—consumer, auto, and transport—have pulled back significantly. Against this backdrop, a mini bull market may emerge, fueled by policy-driven plays such as capacity reduction. However, sustained upside will depend on monitoring price trends and confirming profit recoveries across affected industries. Tactical optimism is warranted, but caution against premature overexposure is essential.
Conclusion
Going long on capacity reduction themes offers profit opportunities, but reaching institutional-grade investment conviction will require time and data validation. Investors must carefully differentiate between temporary bounces and structural winners, focusing on companies and sectors with enduring competitive advantages and policy tailwinds.