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[Weekly Market Insights] Nonfarm Payrolls Far Exceed Expectations, Reigniting Rate Hike Narrative

Guide to this week's strategies for the US and Hong Kong markets:

Nonfarm Payrolls Double Expectations, Rate Hike Expectations Repriced—How Will Richly Valued AI Assets Be Revalued?

Hang Seng Index Edges Lower While Southbound Flows Remain Steady—How Resilient Are Hong Kong Equities?

[Live Stream Reservation] Today at 16:30, Futu's Chief Investment Research Expert Will Join You to Preview This Week’s Market and Capture the Apple WWDC Investment Window!

On the eve of Apple's AI make-or-break moment, which sector will lead the rotation?

[I. Macroeconomic Observations]

1.1 Global Macro: US Nonfarm Payrolls Double Expectations—Will the Fed Restart Its Rate Hike Cycle?

US nonfarm payrolls added 172,000 jobs in May, nearly double the market expectation of 88,000; March and April figures were collectively revised upward by 93,000. Job growth over the past three months is the strongest in over two years. The unemployment rate held steady at 4.3%, and average hourly earnings rose 3.4% year-over-year, both in line with expectations.Following the data release, US Treasuries sold off, with the 2-year yield rising more than 7 basis points in a single day to 4.1%.

Interest rate swap markets have fully priced in a Fed rate hike this year and anticipate the first move as early as October.The ECB is almost certain to hike rates by 25 basis points next week (May core inflation rose to 2.5%), while Bank of Japan Governor Ueda has signaled a hawkish stance. Major global economies are re-entering a tightening cycle, which stands as the key constraint for risk assets this week.

US Non-farm Payroll Data

10-year U.S. Treasury yield

1.2 Policy Developments: Expansion of Section 301/232 Tariffs—How Will Trade Tensions Escalate?

After courts ruled tariffs imposed under the International Emergency Economic Powers Act (IEEPA) and Section 122 invalid, the U.S. government shifted toward Sections 301 and 232: two Section 301 investigations now cover 'structural overcapacity' in 16 economies and forced labor enforcement in 60 economies (proposed tariffs of 10%–12.5%, with public comments due by July 6).

Compared with 2017–2018,the current round of measures targeting China is broader in scope and moving faster, but faces higher legal risks because courts emphasize adherence to statutory language; Section 232 has already been extended to downstream 'derivative' products, and new investigations into active pharmaceutical ingredients, commercial aircraft, and drones are under consideration—making this a policy variable requiring ongoing monitoring in the medium term.

1.3 Rate Convergence: Both the ECB and BOJ Have Turned Hawkish, but Their Future Paths Remain Unclear

ECB: A 25-basis-point rate hike next week is virtually certain, triggered by core inflation jumping to 2.5% in May. Even under the baseline scenario of three rate hikes, core inflation is projected to remain above 2% over the forecast horizon. However, due to limited growth and energy outlooks, the ECB will guide markets to focus on the uncertainty surrounding its projections.

BOJ: Underlying inflation remains elevated, creating significant pressure for rate hikes; Governor Ueda sent a hawkish signal this week, but since a June rate hike has already been priced in by markets, the yen did not strengthen, and USD/JPY rebounded to around 160.

Both the ECB and BOJ have turned hawkish, ushering in a phase of global synchronized tightening; however, markets have already priced in the BOJ’s hike, while uncertainty persists regarding the ECB’s forward path.

[Section Two: Market Views]

2.1 US Equity Market: Nonfarm Payrolls Trigger a Sell-off—How Will the Valuation Digestion Phase Unfold?

$S&P 500 Index (.SPX.US)$ Down 2.59% for the week, $Nasdaq Composite Index (.IXIC.US)$ down 4.68%; the sharp drop on June 5 acted as the catalyst, showing that high-valuation growth stocks are not immune to interest rates. Beyondthe stronger-than-expected nonfarm payrolls pushed markets into a pricing framework anticipating a potential rate hike this year, triggering a rise in U.S. Treasury yields, a spike in the VIX, and a broad sell-off in AI-related tech stocks.

Overall sentiment has shifted toward cautious neutrality, particularly urging prudence on high-valuation tech, semiconductors, and crowded growth trades; heightened index volatility is expected over the next two weeks, with style rotation partially shifting from extreme growth toward defensive and value-oriented sectors.Strategically, reduce chasing second-tier, high-beta names, maintain core exposure to leading large-cap stocks for medium-term allocation, and moderately increase weightings in defensive sectors such as healthcare and utilities.

Data shows only 25% of S&P 500 constituents outperformed the index in May; the Magnificent 7 accounted for 43% of market-cap gains, while semiconductors contributed 47% of incremental returns, indicating elevated crowding. The S&P 500’s forward 12-month P/E ratio stood at 21.5 (as of June 4), leaving little room for valuation error.

Focus Stocks -$American Tower Corp (AMT.US)$ : The leading North American communications tower REIT.

1Q26 results beat expectations, with full-year guidance raised; the 2026 AFFO per share guidance range has been increased to $10.90–$11.07 (midpoint approximately $10.99), alongside upward revisions to total property revenue, Adjusted EBITDA, and AFFO outlook. U.S. tower segment revenue growth has rebounded to mid-single digits following the conclusion of DISH churn, with underlying growth excluding DISH at approximately 4.5%.

Management has fully excluded DISH revenue from its guidance, anchoring valuation on cash flow sustainability and contract visibility. In 1Q26, the company raised its CoreSite investment commitment from $200 million to $800 million, highlighting strong demand and pricing power. AI/edge/inferencing tailwinds have not yet been fully incorporated into base assumptions, representing a second growth engine beyond traditional tower leasing.

In an environment of heightened interest rate volatility, infrastructure assets with lower risk profiles, higher asset quality, and a dividend yield of approximately 4% offer relatively stronger defensive characteristics, making them a more attractive risk-adjusted option among tower REITs.AMT is also the tower REIT offering the highest risk-adjusted return.

Risk-return comparison among AMT, CCI, and SBAC—the three tower REITs

2.2 Hong Kong Market: Hang Seng Index posts only a marginal decline—how resilient is it amid external shocks?

The Hang Seng Index declined 0.88% for the week, with average daily turnover of HK$328.2 billion, down approximately HK$46.6 billion from the prior week. Southbound Connect recorded net inflows of HK$22.8 billion (a sequential increase of over HK$22 billion). Top net buys included $SMIC (00981.HK)$ 、 $POP MART (09992.HK)$ 、 $AKESO (09926.HK)$ , with the market still primarily trading growth-oriented names.

Overall, the market remains choppy, with a modest downward revision expected—but the magnitude is likely smaller than that seen in U.S. equities.— The Hang Seng Index has already declined 2.30% in May. Valuations in certain segments of internet, consumer, and cyclical sectors are at historical lows, limiting further downside. Risks stem more from external factors(spillovers from U.S. tech stocks, rising U.S. Treasury yields, geopolitics, and oil prices). Should any of these variables show marginal improvement, Hong Kong equities could demonstrate greater elasticity than A-shares. Maintain a barbell allocation strategy: core holdings in high-dividend stocks, banks, utilities, and telecom operators; offensive positions in undervalued internet leaders, AI applications, and innovative pharmaceuticals.

Data-wise, the Hang Seng Index’s forward 12-month P/E ratio stood at approximately 11 (as of June 5). From June 1 to 5, southbound capital recorded multiple days of significant net inflows (exceeding HK$7 billion, HK$6 billion, HK$13 billion, and HK$4 billion on individual days), indicating continued funding support and relatively low valuation levels.

Stock Spotlight – $HKBN (01310.HK)$ : A local network infrastructure and enterprise ICT platform operator.

Since being acquired by China Mobile, its credit profile and cash flow dynamics have improved, with financing costs down by 110 basis points. Future multi-period cash flow improvements deserve more attention than modest net profit growth; enhanced residential user experience is stabilizing market share and ARPU, while enterprise solutions—including connected vehicles, low-altitude economy, IoT platforms, and mobile cloud—are expanding.

The company possesses local network infrastructure, data center capabilities, and systems integration expertise, and can leverage domestic GPU resources to access cost-efficient computing power, positioning it close to an AI infrastructure resale and integration platform. It launched an AI platform on May 7, creating industrial synergy with China Mobile in areas such as Mobile Cloud and token operations.

The key window is in the second half of fiscal year 2026—if any two of the three elements (synergy realization, cash flow enhancement, and AI commercialization) show earnings statement resonance, it will be a neutrally bullish candidate worth monitoring.

Core basis:

① Core risks related to high leverage and refinancing pressure are easing. Financing costs have declined, and future multi-period cash flow improvements are more noteworthy than modest net profit growth.

② The launch of AI platforms has shifted focus toward ICT platform stocks with AI monetization options, aligning with China Mobile’s strategic direction in Mobile Cloud and token operations across the industry.

③ Management highlighted tangible operational improvements—including enhanced user experience for mainland visitors, better application performance, and accelerating sales growth—and explicitly stated that these effects are expected to be reflected in full-year results.

[III. Focus for This Week]

What are the key events investors should focus on this week?

[4. Major bank views]

US Stock Summary:Shift toward a cautious and neutral stance, remaining prudent on high-valuation technology, semiconductors, and crowded growth positions; this correction represents a concentrated repricing of richly valued AI assets under macro constraints. Heightened volatility is expected over the next two weeks, with leadership gradually rotating from extreme growth toward defensive and value segments.Maintain core exposure to leading-tier names for medium-term positioning and tolerate increased near-term volatility. The Magnificent Seven will still offer structural opportunities in the second half, though they are unlikely to replicate the pace seen in 2025.

Hong Kong Stock Summary:The market remains broadly range-bound, with risks primarily external in nature, reflected in fragile risk appetite and funding conditions. Consensus expectations for earnings over the next 12 months have risen by only 1.5% in the past three months—the slowest pace since last summer. Overseas mutual funds turned net sellers of Chinese equities in May, shifting from prior net inflows.Maintain a barbell allocation strategy, combining high-dividend defensive holdings with low-valuation blue-chip names on the offensive side.

[5. Simulated Portfolio]

5.1 Portfolio Overview

5.2 Rebalancing Rationale

5.3 Performance Attribution

Portfolio updated as of May 4

[Investment Advisory Information]

Joe Yu | SFC Central Reference Number: ATQ882

Tim Yang | SFC Central Reference Number: BUR210

Freya Sun | SFC Central Reference Number: BWS708

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