Macroeconomic market volatility has resurfaced, with geopolitical factors influencing market sentiment

Our product delivered solid returns last week, with the USD class net asset value rising by 12 basis points and the HKD class increasing by 8 basis points. This week, US Treasury yields experienced significant fluctuations, but our product performed well, showcasing the excellent defensive characteristics of short-duration bond funds.

Last Monday, Japanese Prime Minister Sanae Koji announced a snap election, unsettling the markets. The market expects her tax cut policies to further increase deficits and boost government bond issuance, resulting in a sell-off in Japanese bonds, with yields rising significantly, which also put pressure on US Treasuries. Trump threatened to impose additional tariffs on eight European countries, including Denmark, if he could not secure Greenland, raising concerns about US-Europe trade war risks and triggering risk aversion. By last Wednesday, January 21, Trump stated that a framework agreement on Greenland had been reached, suspending the tariff threat and restoring market sentiment. During this period, US Treasury yields first rose then fell, showing little change for the entire week but experiencing large fluctuations. In terms of macroeconomic data, the US third-quarter GDP was revised up to 4.4%, the fastest growth rate in two years. Core PCE increased by 0.2% month-over-month, in line with market expectations.

A surprise contender has emerged for the next Federal Reserve Chair position: Rick Rieder, Blackrock's Chief Investment Officer of Fixed Income. In an interview last Thursday, Trump described him as "very impressive," making him the market's hottest candidate at present. Rieder believes the Fed should prioritize economic growth and employment over excessive concern about inflation, and is considered a dovish candidate.

Facing the current market full of uncertainties, we will closely monitor macroeconomic data and individual credit quality. We will adopt a defensive strategy while remaining flexible for adjustments. Our goal remains focused on relatively predictable returns, deploying carefully selected credit assets to seek returns within a more stable income framework.

Here’s a recap of last week's macroeconomic data:

1. Q3 GDP – 4.40%, previous value 4.30%, expected 4.30%

2. Initial jobless claims – 200K, previous value 198K, expected 209K

3. Core PCE – 0.20%, previous value 0.20%, expected 0.20%

Focus next week: Durable goods orders (January 26), initial jobless claims (January 29), FOMC meeting (January 29)

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