Hanya Investment: The easing direction of U.S. inflation reduces interest rate cut expectations, and investors are returning to AI-benefiting stocks
Hanya Investment pointed out that the easing trend of inflation in the United States has significantly reduced market expectations for interest rate hikes in September and before the end of the year. Although fiscal concerns have pushed up long-term yields, the upward adjustment of AI infrastructure spending has strengthened the earnings momentum of related sectors, prompting investors to rotate back to AI-benefiting stocks. The team recommends balancing inflation risks, policy paths, and long-term AI trends
According to the Zhitong Finance APP, Han Ya Investment, an investment institution under Prudential Group, recently published the latest issue of "Chief Investment Officer Insights - Weekly Briefing." Although inflation levels remain high, the direction of its development has alleviated market concerns about imminent interest rate hikes. At the time of writing, the implied probability of a rate hike by the Federal Open Market Committee (FOMC) in September has dropped to 29%, significantly lower than the over 72% level following the hawkish stance taken at the July meeting. Additionally, the market is no longer fully pricing in expectations for a rate hike before the end of the year.
Ongoing fiscal concerns continue to push up term premiums, causing the U.S. Treasury yield curve to steepen. If long-term yields continue to rise without a significant acceleration in inflation, the resulting tightening of financial conditions may allow policymakers to maintain interest rates unchanged for a longer period.
Nevertheless, the team remains vigilant about the risk that conflicts in the Middle East could reignite inflationary pressures and notes that potential inflation remains significantly above target levels. Inflation risks are particularly relevant for economies that heavily rely on energy imports, and food price pressures related to the El Niño phenomenon may further elevate overall inflation by 2027.
In the Asia region, the team continues to expect that most central banks will maintain or further enter a tightening cycle in the coming quarters, with China and Thailand being notable exceptions.
On the other hand, major hyperscale cloud service providers continue to raise their spending plans for AI infrastructure, further strengthening the argument for sustainable profitability in the AI ecosystem. As a result, investors are gradually rotating back to AI-benefiting stocks, with growth stocks once again outperforming the market and cyclical sectors.
Han Ya Investment believes that directional changes in U.S. inflation data have eased short-term rate hike expectations, but fiscal and geopolitical factors still support rising long-term yields and term premiums. At the same time, the ongoing increase in AI infrastructure investment provides profit support for related growth themes. Investors need to strike a balance between inflation risks, policy paths, and long-term AI trends
