Global Markets Weekly Review | Hong Kong, Brazilian, and select U.S. equity markets showed resilience and gained against the broader downtrend, while South Korea’s KOSPI posted the most notable decline

U.S.: June FOMC Minutes Signal Policy Divergence, with Inflation and the AI Industry as Key Sources of Uncertainty

Last week, the Federal Reserve released the minutes from its June policy meeting. While officials broadly agreed to hold rates steady, they expressed significant disagreement over the inflation outlook and the future path of monetary policy. On inflation, views within the Fed were split: some officials noted that price pressures continue to broaden, highlighting persistent inflation and increasing difficulty in achieving a sustained decline; others pointed to cooling housing services prices as a potential catalyst for gradually easing inflation.For the first time, the minutes placed particular emphasis on the medium- to long-term impact of the AI industry on inflation, revealing two opposing viewpoints:In the short term, the AI investment boom is pushing up prices for tech products and electricity, providing upward pressure on inflation; over the longer term, however, AI-driven productivity gains and expanded goods supply could potentially exert downward pressure on inflation. Additionally, geopolitical tensions in the Middle East and transformative shifts driven by the AI sector have significantly heightened uncertainty in economic forecasting, making policy projections more challenging.On the monetary policy front, officials showed clear divergence regarding the future interest rate path, with some advocating for moderately tighter policy to contain elevated inflation,while others argued that rates should be held steady or slightly lowered by year-end. Overall, the Fed has yet to reach a unified consensus on its policy trajectory, leaving both flexibility and uncertainty unusually high.

China: June Price Data Show Structural Divergence—CPI Moderately Eases, PPI Reflects Upgrading Industrial Trends

China’s June price data revealed a pattern of moderate easing in downstream consumer prices alongside structural divergence in upstream industrial prices, with overall inflation remaining mild and well-contained.Regarding the CPI, both year-on-year and month-on-month increases moderated in June, primarily weighed down by declines in global oil and gold prices, coupled with the off-season for summer travel and a pullback in service prices;the pace of food price declines narrowed slightly, with notable increases in egg prices and continued moderation in pork prices offsetting some downward pressure on overall prices. Core CPI remained stable at a 1.0% year-on-year increase, underscoring the resilience of service prices and signaling steady recovery in domestic demand. PPI exhibited pronounced divergence: it turned negative on a month-on-month basis, mainly due to falling international crude oil prices and declining prices in energy- and power-related sectors, yet the year-on-year increase widened slightly, supported by a low base effect.Structurally, traditional energy and refining sectors are under price pressure, while emerging industries such as AI, new energy, and advanced manufacturing are experiencing robust demand,driving price increases in sectors like smart devices, new materials, and electrical machinery. Industrial upgrading continues to reshape the pricing structure of industrial goods. Overall, domestic prices remain generally moderate, with pronounced structural characteristics, and new growth drivers continue to support industrial prices. The pace of domestic demand recovery will be the key variable determining future price trends.

In the equity market,

Global markets broadly weakened last week, with risk appetite declining overall, though a few markets—including Hong Kong, Brazil, and the U.S.—gained against the trend.The KOSPI tumbled 7.6%, leading global declines, while Russia, Taiwan, and major European markets all saw significant corrections,and MSCI Emerging Markets, the UK, Japan, and mainland China markets all came under pressure. Only Brazil’s Ibovespa rose 2.2%, the S&P 500 gained 1.2%, and the Hang Seng Index surged 3.5%, standing out positively, while Canada’s market edged up slightly.The overall pattern featured broad declines across Asia-Pacific and Europe, with Hong Kong stocks standing alone in strength and U.S. equities showing relative resilience.

Source: Wind

Last week, $S&P 500 Index (.SPX.US)$ rose 1.2%,Sector performance showed technology and energy leading gains, while cyclical and defensive consumer sectors collectively pulled back.Information technology rose 3.4%, energy gained 3.2%, and communication services advanced 2.3%, outperforming other sectors; materials, healthcare, consumer staples, and industrials all posted modest declines,with market funds concentrating into technology and energy sectors.

Source: Wind

The Hang Seng Index rose 3.5% last week, with notable structural divergence in the market, led by gains in consumer, technology, and conglomerate sectors.Industrial and materials sectors underwent significant corrections. Non-discretionary consumer stocks surged 7.5%, while the Hang Seng Tech Index, information technology sector, and conglomerates all gained nearly 5%. Industrials plunged 6.6%, materials fell 4.6%, and essential consumer goods also weakened.The market displayed a divergent pattern, with growth and consumer sectors leading gains while cyclical segments faced clear pressure.

Source: Wind

Bond Market

Global bond markets continued to retreat over the past week, with the Global Aggregate Index down 0.40%, the U.S. Aggregate Index falling 0.44%, U.S. investment-grade corporate bonds declining 0.60%, and U.S. high-yield corporate bonds edging up 0.02%. The Emerging Markets USD Bond Aggregate Index dropped 0.20%, and the China USD Credit Bond Index fell 0.16%.

On the rates front, U.S. Treasury yields moved higher across the curve, with the 2-year Treasury yield rising 7 basis points to 4.21% and the 10-year Treasury yield climbing 8 basis points to 4.56%.

Market outlook

– The tug-of-war between 'sticky inflation' and 'cooling labor market' is entering a critical verification phase.

The core tension in overseas markets currently lies in the intensifying tug-of-war between 'sticky inflation' and 'cooling labor market,' which is now entering a critical verification period. Although the June nonfarm payroll data came in significantly below expectations—undermining the case for further rate hikes—the depth of policy disagreement revealed in the FOMC minutes is substantial: nine officials indicated in the dot plot that at least one more rate hike is likely this year. This suggests the Fed has yet to reach a clear policy consensus. Under Walsh’s new framework, which completely discards forward guidance, the marginal market impact of every incoming data point has been significantly amplified.June CPI data, to be released next Tuesday, will serve as the most critical near-term validation window: the market currently expects core CPI to remain unchanged year-over-year at 2.9%.Headline CPI is expected to decline year-over-year from 4.2% to 3.8% (primarily reflecting lower energy prices). Should core CPI unexpectedly rise, the probability of a rate hike at the July FOMC meeting would increase.

Resurgent geopolitical risks have added uncertainty to the market. Following Trump’s declaration that the U.S.-Iran memorandum of understanding 'has ended,' traffic through the Strait of Hormuz has sharply declined, and war risk insurance premiums have spiked again. Although some LNG carriers and tankers continue to transit, daily vessel traffic has fallen to fewer than 25 ships from a post-peace-deal peak of 72.The evolution of this situation will directly affect energy price trends and inflation expectations—if tensions escalate further, the narrative of inflation relief driven by the recent decline in oil prices will face a severe test,and will also intensify the Federal Reserve's policy dilemma. Conversely, if both sides return to the negotiating table, a drop in oil prices would provide strong support for a decline in CPI.

Meanwhile, the Q2 U.S. earnings season is about to kick into full swing. Market rotation continues this week, with AI and semiconductor stocks—which saw substantial gains in the first half of the year—rebalancing toward financials, energy, and healthcare sectors.Next week, major U.S. banks will report their Q2 results; changes in their net interest margins and credit quality will offer micro-level validation of the soft-landing economic narrative.

Key economic data and events this week

On Tuesday, the U.S. will release June CPI data and Q2 earnings reports from JPMorgan, Bank of America, Citi, and Wells Fargo & Co. China will release its June trade data;

On Wednesday, the U.S. will release June PPI. China will release June industrial production, retail sales, and Q2 GDP data;

On Thursday, the U.S. will release June retail sales.

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