Zhongjin: The current difficulty in reducing interest rates by the Federal Reserve, but market expectations for a rate hike are still overly pessimistic.

Zhongjin released a research report, stating that the current situation is as follows: first, the technology congestion is high, second, the tight liquidity situation still needs to be monitored, such as the continuous withdrawal of funds by the domestic central bank, the Bank of Japan's potential interest rate hike next week and the not insignificant scale of yen carry trade, the Fed's Powell will make his "debut" next week, and the rapid inclusion of SpaceX in the index may lead to "watering down" similar companies. The aforementioned liquidity "headwinds" are all clear, and the impact can be controlled under the baseline scenario. For example, the potential interest rate hike by the Bank of Japan is already fully anticipated, Powell is unlikely to be more hawkish than expected, and the amount of SpaceX financing is equivalent to less than three weeks of dividends and stock repurchases in the US market. Additionally, if the Iran agreement is reached as stated by Trump on Sunday, it could also be seen as a "good news" stabilizing expectations. It is expected that May inflation could be the peak of the year, implying that the Fed is unlikely to cut interest rates at this stage, but the market's expectation of rate hikes is overly pessimistic. Interest rate pressure would only occur if oil prices remain at $120. Zhongjin's main points are as follows: Foreign capital: Active foreign capital outflow of USD 420 million from Hong Kong stocks (compared to USD 410 million outflow last week), and outflow of USD 150 million from A-shares (compared to USD 200 million outflow last week). Passive foreign capital inflow of USD 390 million into Hong Kong stocks (compared to outflow of USD 800 million last week), and outflow of USD 15.7 million from A-shares (compared to outflow of USD 140 million last week). Emerging market funds saw the largest outflow. Southbound: Net inflow of HKD 4.25 billion (compared to inflow of HKD 22.82 billion last week), daily average of HKD 850 million (compared to HKD 4.56 billion last week). Most buying in Tencent and Jiantao, most selling in Alibaba and Semiconductor Manufacturing International Corporation. At the beginning of this week, there was continued volatility, with the South Korean stock market experiencing severe fluctuations and concerns about high leverage risks. Fortunately, the lower-than-expected US CPI and easing tensions in Iran served as a lifeline, leading to falling oil prices and a stabilized market. SpaceX made a record-breaking IPO on Friday, and the market's reaction was moderate. However, last Friday saw a significant increase in trading volume and a rotation in styles, while liquidity concerns continue. Therefore, the market is generally focused on whether the liquidity tightness will cause turmoil and if the style should move away from tech rotation. The current situation is as follows: first, the technology congestion is high, second, the tight liquidity situation still needs to be monitored, such as the continuous withdrawal of funds by the domestic central bank, the Bank of Japan's potential interest rate hike next week, the not insignificant scale of yen carry trade, the Fed's Powell making his "debut" next week, and the rapid inclusion of SpaceX in the index may lead to "watering down" similar companies. The aforementioned liquidity "headwinds" are all clear, and the impact can be controlled under the baseline scenario. For example, the potential interest rate hike by the Bank of Japan is already fully anticipated, Powell is unlikely to be more hawkish than expected, and the amount of SpaceX financing is equivalent to less than three weeks of dividends and stock repurchases in the US market. Additionally, if the Iran agreement is reached as stated by Trump on Sunday, it could also be seen as a "good news" stabilizing expectations. It is expected that May inflation could be the peak of the year, implying that the Fed is unlikely to cut interest rates at this stage, but the market's expectation of rate hikes is overly pessimistic. Interest rate pressure would only occur if oil prices remain at $120. However, the potential risks of various events coming together are still worth watching, such as the return of yen carry trade scale to the July 2024 level, potential changes in the Iran situation; the market is paying attention to Anthropic ARR growth and token price declines; US stock AI trading tends to be strong in two quarters and weak in one, which corresponds to the current market waiting for new catalysts, as well as the 7-8 months earnings period. High congestion does not change the trend, industry trends do; but it magnifies the fluctuations, especially in times of tight liquidity. Therefore, fluctuations in liquidity can actually help digest high expectations and congestion, providing better re-entry opportunities, which is a healthy adjustment. Of course, if extreme risks were to materialize, it is not advisable to use long-term industry logic to "resist" short-term tightening pressure, such as the performance of US stocks and gold during the interest rate hike cycle in 2022. In terms of operations, in the face of potential but unpredictable surprises, absolute return seekers can control positions, while relative return seekers may "shrink" positions more. From a rotation perspective, the downward movement of US bond rates could become an opportunity for rotation and balance, but the rotation direction should still follow credit direction, focusing on cyclical rather than consumer stocks, Hengke and other denominator-sensitive assets will also benefit partially.