To The Moon

I. Performance and Valuation of Global Equity Indices

Data Source: Bloomberg, Tiger

Key Highlights

◼ Last week, growing expectations of a Fed rate cut continued to drive global capital markets higher, with notable gains in non-U.S. equities and U.S. small caps. The Nikkei 225, Russell 2000, as well as the CSI 300 and Hang Seng Index all posted weekly gains of more than 2%. By contrast, previously overheated U.S. large-cap tech stocks entered a consolidation phase, leaving the Nasdaq and S&P 500 slightly lagging. Overall, market sentiment remains strong.

◼ Recently, U.S. July PPI unexpectedly surged to its highest level in nearly three years, far exceeding both forecasts and the previous reading, seemingly challenging the rate-cut narrative suggested by CPI. However, the PPI data is not as alarming as it looks—the main driver was still services. Core consumer goods, which are closely tied to tariffs, did not show a sharp rise; in fact, their growth was even slower than the prior month. As a result, expectations for a September rate cut have not meaningfully declined and remain as high as 85%. Meanwhile, Greater China equities have performed very well recently. Yet macro data continues to be weak, and fundamentals remain near the bottom. This rally appears to be liquidity-driven rather than fundamentally driven—a so-called “water buffalo market.” In terms of allocation, we continue to focus on two areas: undervalued cyclicals and high-quality technology.

◼ Key events to watch this week include the Fed meeting minutes, Powell’s remarks, and earnings reports from U.S.-listed Chinese companies.

II. Key Market Themes

Twists and Turns, East Rises While West Sways

Last week, the U.S. released a series of hard macro data, causing the market narrative for U.S. equities to flip back and forth. It started with a fairly decent July CPI, which we discussed in detail in last week’s commentary. To sum it up in one sentence: goods inflation is not out of control, and concerns about stagflation have eased significantly. Stimulated by this, the U.S. small-cap Russell 2000 index surged more than 2% in a single day. However, just two days later, the PPI brought an unexpected surprise. In July, U.S. PPI rose 0.9% MoM, the largest increase in nearly three years—well above the market consensus of 0.2% and the previous reading of 0%. Unsurprisingly, many media outlets ran sensational headlines to highlight the “explosive” nature of the data.

Interestingly though, after the release, professional investors on FedWatch did not significantly reduce their expectations for a September rate cut, which still stand at around 85%. A closer look at the PPI breakdown explains why: the main driver of the surge came from the services component. Core goods (excluding energy and food) only rose 0.38% MoM—higher than the prior month, but far from being out of control. Drilling down further, most of this 0.38% came from export goods prices, while consumer goods, which better reflect tariff impacts, rose just 0.25% MoM—lower than June’s 0.29%. Therefore, the PPI is not nearly as alarming as the headline figure suggests, and the impact of tariffs remains within a manageable range.

Data Source: Bloomberg

In addition, last week’s PPI data contained a few interesting points. First, services were the main driver—particularly Trade Services, which represent changes in wholesalers’ and retailers’ profit margins. This category alone contributed about 40% of the overall PPI increase. While it does not directly reflect tariff impacts, it does indicate that U.S. domestic demand remains strong and that underlying inflationary pressures persist. Moreover, with both CPI and PPI data in hand, we can roughly estimate July’s PCE. Recently, Nick Timiraos of the “Fed’s unofficial news agency” (WSJ) posted that core PCE for July is expected to rise 0.28% MoM. Overall, tariffs are having an impact but not a significant one, and we still need to wait for August data. Consumer demand resilience remains intact, and underlying inflation pressures should not be ignored. Therefore, we do not expect Powell to sound dovish at this Friday’s Jackson Hole symposium; on the contrary, his remarks may turn out to be more hawkish than markets anticipate. This is a key risk to watch this week.

Beyond U.S. equities, recent market focus has shifted to Greater China. Boosted by both policy support and ample liquidity, the Shanghai Composite surged past the 3,700 mark—breaking not only last year’s September 24 high, but also reaching its strongest level in nearly a decade since 2015. At the same time, market activity has also picked up notably: in recent sessions, combined daily turnover in Shanghai and Shenzhen has consistently exceeded RMB 2 trillion, even approaching RMB 3 trillion.

That said, despite the market excitement, the latest economic data remains relatively weak. July industrial production rose 5.7% YoY, below market expectations and the lowest reading so far this year. Retail sales grew only 3.7% YoY in July, also missing expectations and hitting a new low for 2024. Fixed asset investment for January–July rose just 1.6% YoY, with the growth rate continuing to slow. In short, the fundamentals of Greater China remain at a relative bottom. The recent rally has been more of a liquidity-driven “water buffalo market.” Two major drivers are: expectations of Fed rate cuts, and a series of supportive domestic policies—including anti-“involution” measures, fertility subsidies, and consumer loan interest subsidies.

From a sentiment perspective, we’ve also noticed some interesting dynamics. While the Shanghai Composite has already broken above last year’s high, search interest from domestic retail investors—as reflected by Baidu or Douyin search indices—remains far below last year’s levels. By contrast, Google Trends data shows the opposite picture: searches for “Chinese stock” are already well above last year’s levels, with growth accelerating rapidly. This suggests foreign investors may be paying closer attention this time, and the market’s current “slow bull” trajectory stands in sharp contrast to the “frenzied bull” rallies once dominated by domestic retail investors. In conclusion, we believe the challenges from fundamentals remain significant, but the policy direction is clear and constructive. If macro fundamentals can follow through and improve, today’s liquidity-driven rally may evolve into a more sustainable, powerful long bull / slow bull. If not—and the rally rests solely on retail sentiment without real economic recovery—the market could face renewed uncertainties.

Data Source：Baidu，Google

Disclaimer

1. The information contained in this document is for reference only and does not constitute any financial advice or a transaction offer, solicitation, suggestion, recommendation or any guarantee for any financial product, strategy or service. You should make your own investment decisions and bear the risk of investment responsibility independently.

2. The content of this document is based on reliable data sources that the staff believed to be reliable at the time of production. The Tiger Investment Research team may adjust without prior notice. The Tiger Investment Research team does not guarantee the accuracy, reliability or completeness of the content of this document, and does not assume any responsibility for any transactions arising from the content of this article and its derivative consequences.

3. This document is confidential and non-public and can only be accessed by professionals with corresponding risk-taking capabilities and preferences. Without the prior consent of Tiger, no one may copy or distribute it in any form.