Breakfast | The U.S. January non-farm payroll report is strong, market interest rate cut expectations are pushed back, and the three major indices opened high and closed low

Market Overview

The US January non-farm report is overall strong, suppressing market expectations for interest rate cuts, with traders pushing back the expected timing of the first rate cut from June to July, leading to a decline in US Treasury bonds.

US stocks opened higher but later retraced gains due to weakness in large tech stocks, with the three major US stock indices closing slightly lower. Concerns about AI disruption continue to fester, with software stock ETFs falling 2.6%, and real estate service stocks also sold off due to AI concerns, experiencing the largest single-day drop since the pandemic, with CBRE Group and Jones Lang LaSalle plunging 12%.

US Treasury yields rose, with the 2-year Treasury yield up 6.4 basis points and the 10-year yield rising about 3 basis points.

The US dollar experienced significant fluctuations during the day, ending slightly up 0.08%. The Japanese yen rose for three consecutive days, appreciating over 1% at one point.

Cryptocurrency remains weak. Bitcoin fell 1.2%, and Ethereum dropped over 2%.

Spot gold fluctuated and rose 1.3%, while silver surged and then retreated, still up over 4%. Trump is reportedly considering withdrawing from the US-Mexico-Canada Agreement, with WTI crude oil rising 1%.

During the Asian session, the Shanghai Composite Index rose for seven consecutive days, while the ChiNext Index fell 1%, with total trading volume in both markets below 2 trillion yuan. Fiberglass concept stocks surged, with the Hang Seng Index rising nearly 1% and Xiaomi up over 4%.

Key News

China

Li Qiang: Comprehensively promote technological innovation in artificial intelligence, industrial development, and empowering applications, cultivating and expanding new quality productivity.

The State-owned Assets Supervision and Administration Commission is promoting central enterprises to actively expand effective investment in computing power.

China's January CPI year-on-year growth rate fell to 0.2%, while PPI year-on-year decline narrowed to 1.4%.

DeepSeek is conducting a grayscale test of its new generation model.

Zhiyuan released its new generation flagship model GLM-5, focusing on enhancing programming and intelligent agent capabilities.

Manned lunar landing reaches another milestone, with the Long March 10 and Dream Boat spacecraft successfully completing their first flight test mission.

Overseas

The US January non-farm payrolls added 130,000 jobs, the largest increase since April last year, with the unemployment rate dropping to 4.3%, and the annual revision down by 862,000. Wall Street expects the first rate cut to be delayed until July, with the “New Federal Reserve News Agency” predicting a longer pause in rate cuts.

The US budget deficit narrowed by 17% in the first four months of fiscal year 2026, with a significant increase in tariff revenue. The Congressional Budget Office stated that Trump's fiscal path is unsustainable, with the projected US deficit increasing by $1.4 trillion over the next decade.

Oil prices rose over 2% during the day, with reports that Trump is privately considering withdrawing from the US-Mexico-Canada Agreement. Trump's new challenge: Republican leaders failed to prevent a House vote on whether to overturn tariffs on Canada.

Trump stated that reaching an agreement with Iran would be the “preferred option,” while an advisor to Iran's Supreme Leader remarked that the US is becoming more rational

Apple's new Siri release may be delayed again, as testing reportedly exposes issues, with some features possibly launching in September.

Market Report

U.S. and European Stock Markets: The S&P 500 slightly fell, closing at 6941.47 points. The Dow Jones Industrial Average decreased by 0.13%, closing at 50121.40 points. The Nasdaq dropped by 0.16%, closing at 23066.467 points. The European STOXX 600 index rose by 0.10%, closing at 621.58 points.

A-shares: The Shanghai Composite Index closed at 4131.98 points, up 0.09%. The Shenzhen Component Index closed at 14160.93 points, down 0.35%. The ChiNext Index closed at 3284.74 points, down 1.08%.

Bond Market: The yield on the U.S. 10-year benchmark Treasury bond rose by 2.77 basis points, closing at 4.1704%. The yield on the 2-year U.S. Treasury bond increased by 5.79 basis points, closing at 3.5099%.

Commodities: COMEX gold futures rose by 1.48%, closing at $5105.43 per ounce. COMEX silver futures increased by 4.42%, closing at $83.935 per ounce. WTI March crude oil futures closed up 1.05%, at $64.63 per barrel. Brent April crude oil futures closed up 0.87%, at $69.40 per barrel.

News Details

Global Highlights

China

Li Qiang: Comprehensively promote technological innovation, industrial development, and empowering applications in artificial intelligence, cultivating and expanding new productive forces. According to Xinhua News Agency, Li Qiang pointed out the need to deeply understand and grasp the development trend of artificial intelligence, promote breakthroughs across the entire chain of artificial intelligence, and implement it in all scenarios to unleash greater development potential. It is necessary to continuously solidify the technological foundation, advance algorithm innovation, increase the supply of high-quality data, enhance the performance of large models, and proactively layout new technologies and new paths. There should be a strong push for large-scale commercial applications, promote consumption of artificial intelligence terminals and services, build pilot bases for artificial intelligence applications, develop and expand the intelligent agent industry, and explore more high-value application scenarios.

The State-owned Assets Supervision and Administration Commission promotes central enterprises to actively expand effective investment in computing power. The State-owned Assets Supervision and Administration Commission recently proposed that central enterprises should strengthen investment traction, actively expand effective investment in computing power, promote the coordinated development of "computing power + electricity," enhance data governance capabilities across the entire chain, and continuously solidify the foundational base of the artificial intelligence industry China's January CPI year-on-year growth rate falls to 0.2%, PPI year-on-year decline narrows to 1.4%. China's January CPI year-on-year growth rate fell from 0.8% to 0.2%, mainly due to two reasons: first, the impact of the Spring Festival misalignment. Last January was the month of the Spring Festival, with significant increases in food and some service prices, leading to a high comparison base from the same period last year, which caused a substantial drop in this month's year-on-year growth rate. Second, changes in international oil prices led to an expanded decline in energy prices, with energy prices decreasing by 5.0% in January. The year-on-year decline in January's PPI narrowed to 1.4%.

• Huatai Securities believes that the January CPI's year-on-year drop to 0.2% is mainly temporarily suppressed by the Spring Festival misalignment, but the core CPI's month-on-month increase of 0.3% reached a six-month high, indicating a mild recovery in domestic demand. The narrowing year-on-year decline in PPI and accelerated month-on-month increase benefit from rising non-ferrous prices and the promotion of "anti-involution". With the optimization of supply and demand patterns and external demand recovery, the inflation center is expected to steadily rise, and core inflation is gradually improving.

Is DeepSeek's new model coming? DeepSeek is gray testing a new generation model. Some users received an update prompt after opening the App, with the new version's context length expanded from 128K to 1M, and the knowledge base updated to May 2025. The official App indicates that this may be the ultimate gray version before the official launch of V4. Nomura Securities reports that the core value of V4 lies in driving the commercialization of AI applications through underlying architectural innovation, rather than disrupting the existing AI value chain.

• See you during the Spring Festival? DeepSeek's next-generation model: "High cost-performance" innovative architecture helps China break through the "computing power chip and memory" bottleneck. Nomura Securities believes that the upcoming release of DeepSeek's new generation large model V4 may further reduce training and inference costs through innovative architectures like mHC and Engram technology, accelerating the innovation cycle of China's AI value chain. It is also expected to help global large language model and AI application companies accelerate the commercialization process, thereby alleviating the increasingly heavy capital expenditure pressure.

Zhiyun releases the new generation flagship model GLM-5, focusing on enhancing programming and intelligent agent capabilities. On February 11, Zhiyun launched the new generation flagship model GLM-5, with a parameter scale expanded to 744B and pre-training data reaching 28.5T, integrating DeepSeek's sparse attention mechanism. Internal evaluations show that its performance on programming tasks has improved by over 20% compared to the previous generation, with real-world experiences approaching Claude Opus 4.5; it ranked first in open-source in three Agent evaluations, with asynchronous reinforcement learning as the core breakthrough Another milestone in manned lunar landing, Long March 10 and Dream Chaser spacecraft successfully complete first flight test mission. The Long March 10 rocket and the Dream Chaser manned spacecraft have just successfully completed the maximum dynamic pressure escape flight test, marking a phased breakthrough in China's manned lunar exploration program. This test verified the spacecraft's escape capability under extreme conditions and also validated the recovery capability of the rocket's first stage and the spacecraft's return capsule in ocean splashdown. According to the plan, the "Dream Chaser 1" unmanned flight test will be conducted in 2026, docking with the space station, aiming for the first landing of Chinese astronauts on the moon before 2030.

Overseas

U.S. non-farm payrolls added 130,000 jobs in January, the largest increase since April last year, unemployment rate drops to 4.3%, annual revision down by 862,000. The U.S. non-farm employment added 130,000 jobs in January, marking the largest increase since April 2025, with the unemployment rate unexpectedly dropping to 4.3%, and hourly wages increasing by 0.4% month-on-month, all stronger than expected. The Bureau of Labor Statistics revised down the total non-farm employment for the year ending March 2025 by 898,000. Healthcare led the gains, manufacturing turned positive, and temporary employment continued to shrink. Traders have pushed back interest rate cut bets from June to July. The Federal Reserve faces a contradictory picture of strong monthly data intertwined with weak historical revisions.

• Wall Street expects the first rate cut to be delayed until July, “New Federal Reserve News Agency” predicts a longer pause in rate cuts. The January non-farm employment report may reinforce the Federal Reserve's wait-and-see attitude, making it difficult for Fed officials to find reasons for further rate cuts amid a weak labor market, providing more ammunition for the "hawkish" concerns about inflation. Strong employment data reduces the necessity for the Fed to cut rates before mid-year, but does not completely rule out the possibility of rate cuts this year. Several institutions still expect two rate cuts this year, but the timing has been pushed to the second half of the year.

U.S. budget deficit narrowed by 17% in the first four months of fiscal year 2026, driven by a surge in tariff revenue. Tariff revenue helped the U.S. government reduce its budget deficit by 17% in the first four months of this fiscal year, highlighting the stakes for the government as the Supreme Court weighs whether President Trump has the authority to implement most of the tariffs he has enacted.

• Congressional Budget Office: Trump's fiscal path is unsustainable, with a projected increase of $1.4 trillion in U.S. deficits over the next decade. The Congressional Budget Office (CBO) warned again on Wednesday that the U.S. is on an unsustainable fiscal path, raising its deficit forecast for the next decade by $1.4 trillion, partly due to President Trump's tax law and immigration policy in 2025 From 2026 to 2036, the annual deficit is expected to reach or exceed 5.6% of GDP, setting a record, as the deficit has never remained at such a high level for more than five consecutive years.

Oil prices rose more than 2% intraday, report: Trump privately considers withdrawing from the US-Mexico-Canada Agreement. According to media reports, Trump is privately assessing the possibility of withdrawing from the US-Mexico-Canada Agreement, injecting uncertainty into the critical review on July 1. Market concerns about the prospects of North American energy trade have intensified, leading to an intraday rise of over 2% in oil prices. Currently, negotiations are showing bilateral divergence: Mexico is pragmatic, while Canada is tricky. This move may be aimed at forcing concessions from Canada and Mexico in areas such as immigration and drug prohibition. If the agreement collapses, it will rebuild tariff barriers, raise inflation, and impact midterm election prospects. Analysts believe that the threat of withdrawal is more likely a bargaining chip rather than an ultimate goal.

Trump's new test: Republican leaders fail to stop House vote on whether to overturn tariffs on Canada. Due to three Republican lawmakers "defecting," the House voted on Tuesday night to reject the Speaker's proposal to postpone the tariff vote until the end of July. Even if the House passes a resolution to repeal the tariffs on Canada, Trump is very likely to exercise his veto power, making this vote more symbolic. However, an unfavorable voting outcome, especially in an election year, will exert political pressure on Trump.

Trump says reaching an agreement with Iran would be the "preferred option," Iran's Supreme Leader advisor: The US is becoming rational. US leaders are discussing a "joint action plan" to respond to the failure of US-Iran negotiations. Trump stated that he has informed Netanyahu that if an agreement can be reached, it would be their preferred option; if not, they can only wait and see. The Israeli Prime Minister has reportedly asked Trump that any agreement with Iran should not have a deadline. Iran's Foreign Minister reiterated that reaching an agreement on a peaceful nuclear program is possible. An advisor to Iran's Supreme Leader stated that the US is becoming rational, while Israel seeks to provoke issues and is negotiating the timing of the next round of talks with the US.

Apple's new Siri release may be delayed again, reportedly due to testing exposing issues, some features may be launched in September. Reports indicate that Apple insisted on launching the new Siri features with iOS 26.4 in March this year until last month, but testing revealed issues such as the software's inability to handle queries correctly, long response times, and insufficient accuracy. Apple is now considering that some features may be released in future iOS updates in May or even September, with personal data features particularly likely to be delayed. Apple's stock price, which had risen over 2% during the day, narrowed more than half of its gains.

Research Report Highlights

Morgan Stanley "violently" raises Micron's target price to $450: As long as AI demand is strong, the impact of Chinese production capacity and overheated capital expenditure is not a problem! Morgan Stanley has significantly raised Micron's target price from $350 to $450, The current stock price implies an upside potential of approximately 28.6%. Analysts believe that the supply shortage of memory chips has spread to every end market, with pricing power entirely in the hands of sellers. Driven by the AI supercycle, traditional cyclical valuation frameworks are no longer applicable, and Micron is at a sweet spot of dual expansion in profitability and valuation multiples.

Will optical fiber be the next storage? The demand for AI computing power is reshaping the optical fiber industry, its logic is strikingly similar to the supercycle of memory chips in 2025. Guotai Junan stated that due to high-end capacity shifting towards AI data centers, the supply of traditional G.652D fiber has been squeezed, and prices have doubled compared to last year's collective procurement price. The long expansion cycle of optical rods and the overseas "lock-in" effect have highlighted supply-demand contradictions. Shenwan Hongyuan believes that although the sector's valuation is relatively high, the industry is transitioning from the cyclical bottom to structural prosperity through price increases and high-end products going abroad.

The arbitrage "time bomb" ticks, the recent movement of the yen may signal a global asset shift. The recent strengthening of the yen may trigger large-scale arbitrage unwinding. BCA pointed out that the past three instances of yen arbitrage unwinding were driven by pressure on arbitrage assets, rather than narrowing interest rate differentials, and were accompanied by a surge in global volatility. The current appreciation of the yen has begun to transmit to the Nasdaq, bond volatility indicators, and VIX, with a cross-asset volatility window approaching.

Domestic Macro

State Council: By 2030, a nationwide unified electricity market system will be basically established, coordinating cross-provincial and intra-provincial transaction integration. The "Opinions" state that by 2030, a nationwide unified electricity market system will be basically established, with all types of power sources and electricity users, except for guaranteed users, directly participating in the electricity market, and the market-based transaction volume accounting for about 70% of the total electricity consumption in society. Joint transactions will be realized across provinces and regions, the spot market will fully transition to formal operation, the basic market rules and technical standards will be fully unified, the market-based electricity pricing mechanism will be basically sound, and a fair and unified market supervision system will be basically formed.

MSCI Global Index significantly increases the inclusion of Chinese companies, will passive funds start a new round of "shopping"? In the largest scale in three years, MSCI has significantly increased the inclusion of Chinese stocks, net adding 21 companies, with technology stocks dominating strongly. This move not only opens a "shopping" window for passive funds but also forces global funds to reassess the value of Chinese assets. With the increasing weight of AI and innovative companies, the Chinese stock market is entering a critical moment for new capital injection and structural transformation.

Domestic Companies/Industries

Behind the large-scale surge in fiberglass: electronic cloth is tight, AI computing power faces new constraints! The A-share fiberglass sector has recently surged, with the direct catalyst for the market explosion being the recent price increase of electronic cloth This round of price increases is driven by the explosive demand for high-end AI computing power, while supply is constrained by high technical barriers and costs, leading to slow expansion. As a key material for PCBs, the scarcity of electronic fabrics is directly impacting the supply chain of high-end hardware such as AI servers, becoming a new bottleneck for the development of computing power infrastructure.

Zhongji Xuchuang quickly refutes rumors: CSP customers place orders directly with the company, there is no situation of bypassing the intermediary layer to transfer orders. On February 11, rumors circulated that "the order path for optical modules has changed," claiming that CSP manufacturers bypassed module manufacturers like Zhongji Xuchuang and placed orders directly with upstream laser equipment suppliers, which are then produced by designated assembly plants, causing a plunge in stock prices in the sector, with Zhongji Xuchuang's stock falling 4.28%. The company urgently clarified on the interactive platform that the business model has not changed, and orders are still placed directly by CSP customers, manufactured by the company and delivered directly to CSP customers.

SMIC conference call: HBM shortages will continue, but rapid expansion of AI capacity may lead to idle data centers. SMIC Co-CEO Zhao Haijun revealed that in Q4 2025, the company's business will show a "not-so-slow off-season" characteristic, with 12-inch capacity nearing full load. The strong demand for AI in storage continues to drive high-end and mid-high-end orders while "squeezing" the mid-low-end market such as mobile phones. He also warned that companies are trying to build data center capacity for the next decade within one or two years, but the specific uses of these facilities have not been fully planned, and some capacity may face the risk of idleness.

China Association of Automobile Manufacturers: January automobile sales fell 3.2% year-on-year, the new energy vehicle market operates steadily, with production and sales increasing by 2.5% and 0.1% respectively. According to analysis by the China Association of Automobile Manufacturers, the overall operation of the automobile industry in January was stable, with a decline in the passenger car market, while the commercial vehicle market continued to show a positive trend, and the new energy vehicle market operated steadily, with automobile exports continuing to grow. The main factors leading to the market decline include: first, the adjustment of the new energy vehicle purchase tax policy; second, many local car purchase subsidy policies are in the annual transition period; third, some consumer demand has been released ahead of 2025.

NetEase Q4 revenue fell short of market expectations, but games continue to grow, with contributions from new games becoming apparent. NetEase's fourth-quarter performance fell short of expectations: adjusted earnings per share were 10.95 yuan, lower than the estimated 14.07 yuan; revenue of 27.55 billion yuan also did not meet expectations. Revenue from the gaming business was 21.97 billion yuan, showing weak growth. Management emphasized that AI has been deeply integrated into the entire game development process, becoming a "basic capability." The company maintains shareholder returns, approves dividends, and has completed a $2 billion share buyback, with cash flow remaining robust.

Overseas Macro Balance Sheet Reduction - "Federal Reserve Treasury Agreement" - Interest Rate Cuts, Is This Wash's "Yangmou"? Wash may reshape the Federal Reserve's balance sheet by "swapping short for long," significantly shortening duration without reducing the balance sheet. Barclays analysis points out that to reduce market impact, the Treasury must maintain the same long-term debt issuance to the private sector and increase short-term debt to meet the Federal Reserve's new demand (new agreement). However, even so, this will push up the term premium for long and short-term government bonds, forcing the Federal Reserve to hedge with "lower interest rates," or trigger an investment shift with interest rate cuts exceeding expectations.

Congress Questions "Epstein" Again, U.S. Commerce Secretary "Changes Tune" Admitting: Visited Island in 2012. U.S. Commerce Secretary Lutnick's hearing "backfires," admitting that he dined with his family on Epstein's private island in 2012, contradicting his previous statement of "distancing since 2005." Despite White House support, Justice Department documents reveal ongoing business dealings, leading to a crisis of integrity that has prompted bipartisan pressure in Congress for his resignation, adding personnel changes to Trump's team.

OPEC Monthly Report: January Global Oil Production from Member Countries Drops Sharply, Demand Forecasts for This and Next Year Unchanged. Affected by supply disruptions from Kazakhstan, Venezuela, and Iran, OPEC+’s average daily production in January plummeted by 439,000 barrels month-on-month to 42.448 million barrels, far exceeding market expectations. Kazakhstan contributed over half of the decline due to the shutdown of the Tengiz oil field, but the field has now begun to resume production, suggesting the supply shock may be short-term. Despite the sharp drop in production, OPEC+ maintains its global oil supply and demand forecasts for this and next year, indicating that the current production cuts are driven by short-term factors.

World's Largest Nickel Mine Faces Production Limits from Indonesia, Quota Reduced by 70%, London Nickel Prices Surge. The Indonesian government has significantly reduced the annual production quota for the world's largest nickel mine, Weda Bay Nickel, to 12 million tons, a 71% drop compared to 2025. This production limit directly caused London nickel prices to surge over 2.6% during trading. As a major nickel-producing country, Indonesia is attempting to reverse the low nickel prices caused by capacity expansion through proactive control of key mineral supplies.

Congo's Copper Exports Grew 10% Last Year, Cobalt Exports Dropped Nearly 80%. Congo's copper exports increased nearly 10% to 3.4 million tons in 2025, solidifying its position as the world's second-largest copper producer. Chinese enterprises dominate capacity expansion, providing a crucial buffer for the supply-tight global market, with copper prices rising 40% during the same period to reach new highs. In contrast, cobalt exports plummeted by 80% to 44,500 tons due to government bans and quota reductions. The supply trajectory is clearly differentiated under the co-mining of copper and cobalt Overseas Companies

Tesla proposes "an additional 100GW solar manufacturing capacity," far exceeding domestic demand in the U.S., preparing for space data centers. Morgan Stanley believes Tesla aims to build an independent energy closed loop. This capacity primarily serves "space data centers" and ensures supply chain security, rather than merely selling components. Despite facing hundreds of billions in capital expenditures, subsidies from the IRA Act and vertical integration advantages are expected to bring in hundreds of billions in revenue and significantly enhance the valuation of its energy business.

Global debut, Intel showcases ZAM memory prototype: single chip 512GB, power consumption cut in half, directly competing with HBM. ZAM makes its global debut, promising lower power consumption, higher capacity, and wider bandwidth compared to traditional DRAM. Through vertical stacking, the heat generated by each chip can be evenly conducted upwards, solving the long-standing heat dissipation problem of planar stacking. The prototype product is planned for release in 2027, with full commercialization expected by 2030.

Today's News Preview

U.S. January PPI.

U.S. initial jobless claims from last week.

U.S. January existing home sales.

Arista Networks and Airbnb to release earnings reports.

Amazon Leo satellite launches into space.

IEA to release monthly crude oil market report