The Beautiful Act has taken effect, driving growth

In the first week of the new year, our product achieved decent returns, with the USD class net value increasing by 17 bps and the HKD class rising by 41 bps. The gains were primarily driven by the narrowing of interest rate spreads due to the recovery in market sentiment after the New Year, as well as a rebound in high-beta bond prices.

The latest initial jobless claims released at the end of the year came in at 199K, better than the expected 218K and the previous reading of 214K, indicating that the U.S. labor market has not deteriorated further at the margin. We will continue to monitor the non-farm payroll data this Friday. On January 1, 2026, most provisions of the Beautiful Plan will officially take effect, impacting the economy through two main channels: First, tax cuts for households, including deductions for tips and overtime pay, which will be refunded to residents during the tax refund season, totaling about $100 billion, with the majority of the impact occurring in Q1. Compared to the first universal subsidy provided by the U.S. government during the pandemic, which amounted to $290 billion, $100 billion can significantly boost consumption. Second, corporate tax cuts; the majority of the Beautiful Act extends provisions that were set to expire at the beginning of 2026, but there are also some new tax cut provisions that will have additional effects. The key new provision allows for 100% expensing of capital expenditures, whereas previous laws only permitted 40% and 20% expensing in 2025 and 2026, respectively. These measures can significantly help companies reduce current profits and ease their tax burden. We believe that the full implementation of the Beautiful Act in 2026 will help maintain resilience in the U.S. economy in the first quarter, and the FOMC meeting on January 28 will likely pause the pace of rate cuts.

In response to the current steepening of U.S. Treasury yields and renewed geopolitical conflicts, we will maintain a flexible strategy and adjust accordingly. Our goal for the new year remains focused on relatively certain returns, deploying selected credit instruments to seek returns within a framework of relatively predictable gains.

Let’s review the macroeconomic data from the past week:

1. Initial Jobless Claims – 199K, previous 214K, expected 218K

2. Manufacturing Purchasing Managers' Index – 47.9, previous 48.2, expected 48.4

Key events next week: ADP Employment Data (January 7), Initial Jobless Claims (January 8), Non-Farm Payrolls (January 9).

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