Guotai Junan: What you see is gold, what I see is Hong Kong stocks

The Federal Reserve unexpectedly cut interest rates by 50 basis points, but looking at the trend of the 10-year U.S. Treasury bond, the market seems to have a muted reaction to this unexpected rate cut. After the unexpected rate cut, the 10-year U.S. Treasury bond yield actually showed some increase, to some extent indicating that the bond market had already priced in the rate cut to a large extent.

Compared to the bond market's hesitation, the stock market's trend is more aggressive, with the S&P 500 once again reaching a historical high, indicating that stock investors are very optimistic about the market trend after the rate cut. Our research also shows that historically, after multiple rate cuts, the performance of the U.S. stock market in the month following the rate cut is very good, with the technology sector being particularly favored.

The Chinese Yuan became the star last week, with a rapid appreciation in the exchange rate against the U.S. Dollar, supported by the weakening of the Dollar and the Federal Reserve's rate cut. The dominant factor behind the Yuan exchange rate is still leverage positions, and theoretically, this round of reversal trades will only come to an end after the gradual clearing of short positions. From this perspective, the market needs to pay attention to both the trend of the U.S. Dollar and the volatility of the exchange rate - theoretically, the lower the volatility, the lower the proportion of leverage positions in the market.

The Bank of Japan remained unchanged last week, but hinted at a future continuous rate hike. Many people may also worry that with Japan raising interest rates and the U.S. cutting rates, the Japanese Yen will continue to appreciate. The answer is no. Even if Japan raises interest rates, the interest rate of the Yen is still far lower than that of the Dollar, so the so-called appreciation of the Yen due to Japanese rate hikes is a typical marginal effect event.

This event has been to some extent digested by the market - the significant appreciation of the Yen indicates the venting of such a reversal trade. At the same time, there seems to be no strong downward pressure on U.S. Dollar interest rates, which also means that betting on the weakness of the Dollar at this point may not offer particularly ideal risk-return ratios.

Another market worth paying attention to is the Hong Kong stock market. Many investors are not very positive about Hong Kong stocks, but in fact, since February this year, the Hang Seng Index has risen almost the same as the Nasdaq. Overall, the technical trend of the Hang Seng Index is very good, and the U.S. rate cut will also improve the macro environment facing Hong Kong stocks. In addition, the appreciation of the Chinese Yuan will also drive interest in Chinese Yuan assets in the market. The Hang Seng Index broke through the 18,000-point mark last week, and we also tend to believe that Hong Kong stocks will perform well in the fourth quarter The Chinese yuan became the star of last week, with the combined support of a weakening US dollar and the Fed's interest rate cut, leading to a rapid appreciation of the Chinese yuan exchange rate and hitting a new high for the year. The market is also starting to discuss the possibility of the Chinese yuan exchange rate returning to below 6. The appreciation of the Chinese yuan is a very significant crowded trade reversal, meaning that a large number of trading positions were forced to reverse, resulting in the rapid appreciation of the Chinese yuan.

In other words, the dominant factor behind the Chinese yuan exchange rate is still leveraged positions. After the short positions are gradually cleared, theoretically this round of reversal trades will come to an end. From this perspective, the market needs to pay attention to the trend of the US dollar on one hand, and also observe the volatility of the exchange rate - theoretically, the lower the volatility, the lower the proportion of leveraged positions in the market.

Another perspective to observe the Chinese yuan exchange rate is the Japanese yen exchange rate. The Bank of Japan remained unchanged last week, but hinted at a future continuous interest rate hike. Many people may also worry that with Japan raising interest rates and the US cutting interest rates, will the Japanese yen continue to appreciate? The answer is no. Even if Japan raises interest rates, the interest rate of the Japanese yen is still much lower than that of the US dollar, so the so-called appreciation of the Japanese yen brought about by Japan raising interest rates is a typical marginal effect event.

This event has to some extent already been digested by the market - the significant appreciation of the Japanese yen indicates the venting of such a reversal trade. At the same time, it seems that there is not much downward pressure on US dollar interest rates, which also means that betting on the weakness of the US dollar at this point may not have a particularly ideal risk-return ratio. It is worth noting that historically, the US dollar tends to be strong in September, but this year, influenced by the interest rate cuts, it has shown a counter-seasonal decline; of course, there is still a week in September, and we cannot rule out the possibility of the US dollar making a comeback at the last moment.

Gold hits a new high again, becoming one of the most outstanding assets of the year. The trend of gold has decoupled from the US dollar exchange rate, interest rates, and US inflation trends, indicating a significant change in its pricing model.

From this perspective, the possibility of gold as a new asset class is significantly rising. This also means that the judgment of the future trend of gold requires more open models and pricing factors, which challenges traditional thinking on one hand, and brings new market space and opportunities on the other.

Another market worth paying attention to is the Hong Kong stock market. Many investors are not optimistic about Hong Kong stocks, but in fact, since February this year, the performance of the Hang Seng Index has been almost the same as that of the Nasdaq.

So, many times, how to view the market also depends on the perspective. The technical trend of the Hang Seng Index is very good, the US interest rate cut will also improve the macro environment facing Hong Kong stocks, and at the same time, the appreciation of the Chinese yuan will drive market interest in Chinese yuan assets. The Hang Seng Index broke through the 18,000-point mark last week, and we tend to believe that Hong Kong stocks will perform well in the fourth quarter.

Another market worth paying attention to is the Hong Kong stock market. Many investors are not optimistic about Hong Kong stocks, but in fact, since February this year, the performance of the Hang Seng Index has been almost the same as that of the Nasdaq.

So, many times, how to view the market also depends on the perspective. The technical trend of the Hang Seng Index is very good, the US interest rate cut will also improve the macro environment facing Hong Kong stocks, and at the same time, the appreciation of the Chinese yuan will drive market interest in Chinese yuan assets. The Hang Seng Index broke through the 18,000-point mark last week, and we tend to believe that Hong Kong stocks will perform well in the fourth quarter.

So far this year, there has been an interesting phenomenon. Before the last surge of the Hang Seng Index, gold had a very good performance in the first quarter. In the past quarter, gold surged again, and the Hang Seng Index seems to be showing signs of movement once more. The mystery behind this is worth market attention. To some extent, the influence of mainland funds on these two types of assets is gradually increasing, which seems to be an angle worth observing.

Author of this article: Zhou Hao (S0880123060019), Sun Yingchao, Source: Guojun Overseas Macro Research, Original Title: "【Guojun International Macro】What you see is gold, what I see is Hong Kong stocks"