Financial Daily: US Treasury doubles long-term bond buybacks; 30-year Treasury yield sees largest single-day drop since October! US stocks rebound, gold surges, but why did A-shares plunge?

– Hot Topics

– The US Treasury announced on Wednesday measures to support long-term bonds, doubling the scale of buybacks for 10- to 30-year Treasuries.

– The minutes from the Federal Reserve's July meeting revealed deepening inflation concerns among policymakers, with several officials stating that further rate hikes would be necessary if inflation fails to subside.

– The U.S. Treasury Department announced that the total U.S. national debt has surpassed $40 trillion for the first time.

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– Stock Markets

[US Market] US stocks ended their three-day losing streak, with all three major indices closing higher.

On Wednesday, the three major US stock indices rebounded across the board after the US Treasury unexpectedly announced it would at least double the scale of long-term Treasury buybacks, directly intervening in long-end yields. The yield on 30-year US Treasuries plunged significantly, market liquidity expectations improved markedly, and US stocks halted their previous three-day decline.

At the close, the S&P 500 rose 0.21% to 7,707.98; the Dow Jones Industrial Average gained 0.22% to 53,463.05; and the Nasdaq Composite increased 0.16% to 26,331.09.

Most of the Mag 7 tech giants performed strongly. Tesla led the gains, rising 4.23% boosted by expectations around AI and autonomous driving; Amazon rose 2.46%, Apple 2.12%, Microsoft 0.55%, Meta 0.46%, and Google 0.11%; while NVIDIA fell 1.08%. The Nasdaq Golden Dragon China Index closed up 1.52%, and the Wind China Tech Leaders Index rose 2.43%. Among popular Chinese ADRs, Kingsoft Cloud surged over 14%, Canadian Solar rose over 7%, Atour Lifestyle increased over 5%, and Li Auto gained nearly 5%.

[European Market] European stocks generally closed slightly lower.

European markets were broadly soft on Wednesday, with pan-European indices closing slightly down. At the close, the STOXX Europe 600 fell 0.11% to 651.16, and the EURO STOXX 50 dropped 0.37% to 6,444.46.

Germany's DAX index fell 0.14% to 26,901.33; the UK's FTSE 100 rose 0.14% to 10,743.35; France's CAC 40 declined 0.09% to 8,501.91; and Italy's FTSE MIB index dropped 0.75% to 52,618.20.

[Asian Market] Japanese and South Korean stocks suffered heavy losses, with the South Korean KOSPI plunging nearly 6%.

Major Asian stock markets faced a broad sell-off on Wednesday, with the South Korean market suffering particularly steep losses. Japanese and Southeast Asian markets also recorded declines. The Korean KOSPI index fell sharply by 5.80% to close at 6,471.17, dragged down by a collapse in the semiconductor sector. The Nikkei 225 dropped 3.20% to 65,326.42; the FTSE Straits Times Index of Singapore slipped 0.13% to 5,694.24; and Thailand's SET Index declined 0.73% to 1,609.76.

[Hong Kong Market] Hong Kong stocks showed divergent trends; the Hang Seng Index held steady, while the Hang Seng Tech Index fell more than 1.2%.

The three major Hong Kong stock indices performed unevenly on Wednesday. The Hang Seng Index remained stable, but the Hang Seng Tech Index dropped over 1.2%, weighed down by continued pressure on the AI and chip sectors. At the close, the Hang Seng Index edged up 0.09% to 25,495.07; the Hang Seng Tech Index fell 1.21% to 4,682.05; and the Hang Seng China Enterprises Index rose 0.21% to 8,471.21.

In terms of sectors, banking stocks rallied broadly, boosted by improving net interest margins (NIM). Data from the National Financial Regulatory Administration showed that the NIM for commercial banks reached 1.41% at the end of Q2, marking the first quarter-on-quarter increase since Q1 2022. CITIC Bank rose 2.20%, Agricultural Bank of China gained 2.13%, and Bank of China advanced 1.69%. Oil stocks also strengthened, with PetroChina rising 1.63% driven by tensions in the Middle East, Sinopec up 1.16%, and Yanchang Petroleum International adding 0.84%. Conversely, AI and semiconductor shares faced broad pressure. Baidu Group plunged more than 11%, Hua Hong Semiconductor fell 11.79%, Cambridge Technologies dropped 11.73%, and Zhongji Innolight declined 10.06%. Earlier, long-term US Treasury yields surged to their highest level since 2007. The rise in risk-free rates directly increased financing costs for tech stocks, exacerbating market concerns about debt risks associated with AI capital expenditures. Memory chip stocks followed the sharp decline of US memory leaders overnight, with the impact of SK Hynix and SanDisk falling more than 9% spreading to Hong Kong stocks, pressuring the entire memory chip sector.

[A-Share Market] The three major A-share indices tumbled collectively, with the ChiNext Index dropping more than 6%.

On Wednesday, the three major A-share indices opened lower and continued to fall, suffering heavy losses across the board. The AI computing power supply chain became the hardest-hit area of the decline. The STAR Market plummeted nearly 7%, and the ChiNext Index fell over 6%, as capital rapidly rotated into low-valuation defensive sectors such as banking, coal, and port shipping. At the close, the Shanghai Composite Index dropped 2.4% to 3,894.42, breaking below the 3,900-point mark; the Shenzhen Component Index crashed 5.01% to 13,890.15; and the ChiNext Index closed down 6.26% at 3,473.49.

Regarding sector concepts, the AI computing power chain underwent a collective correction. High-growth tracks such as computing hardware, semiconductors, memory chips, humanoid robots, CPO (Co-Packaged Optics), and optical communications all declined. Semiconductor equipment and chip design led the losses, with Centec Communications down 13.28%, VeriSilicon down 13.13%, Everbright Photonics down 13.01%, Chipown Microelectronics down 12.83%, ACM Research Shanghai down 12.28%, Hua Hong Semiconductor down 11.92%, and Joulwatt down 16.42%. According to The Wall Street Journal, OpenAI's Q2 revenue increased by approximately 18% quarter-on-quarter compared to Q1, but its operating loss widened to $12.3 billion. Market concerns that downstream large model commercialization is falling short of expectations have further compressed procurement forecasts for servers, optical communications, and memory chips. This, combined with the surge in US Treasury yields, has suppressed high-valuation sectors like AI and semiconductors. The memory chip sector declined broadly, with Shannon Semiconductor down 11.05%, multiple stocks including Dapuwei falling more than 10%, GigaDevice down 7.56%, and Changxin Technology down 2.77%. Unitree Robotics saw its STAR Market debut close up 460.34% at 845 yuan; however, the humanoid robot supply chain suffered heavy losses overall, with Swancor New Materials down 19.30% and Leader Harmonious Drive down 17.67%.

– Bonds

[US Treasuries] Long-term US Treasury yields plunged, with the 30-year yield recording its largest single-day drop since October.

The US Treasury market saw a dramatic reversal on Wednesday after the US Treasury Department unexpectedly announced it would at least double the size of long-term bond buybacks, directly intervening in long-end yields. The 30-year US Treasury yield plunged 9.26 basis points in a single day to 5.191%, marking its largest one-day decline since October. The 10-year yield fell 6.14 basis points to 4.641%, while the 2-year yield dipped slightly by 0.44 basis points to 4.160%.

[Non-US Bond Markets] European sovereign bonds rose in tandem with US Treasuries, ending German bunds' three-day losing streak.

European ultra-long-term bond prices generally rose on Wednesday, supported by a significant rally in long-end US Treasuries. German bunds ended their three-day losing streak, with the 10-year yield dropping as much as 2 basis points to 3.24%. UK gilts led gains in Europe, with the 30-year yield falling up to 7 basis points to 5.76%. Meanwhile, the French 10-year yield climbed above 4.13%.

[China Bond Market] Most Treasury futures weakened on Wednesday

Most Treasury futures contracts recorded losses on Wednesday, with declines in long-bond futures widening near the close. The sharp correction in A-shares failed to significantly boost safe-haven demand in the bond market. At the close, the main contract for 30-year Treasury futures fell 0.27%, the 10-year main contract dropped 0.04%, the 5-year main contract declined 0.03%, and the 2-year main contract remained flat.

– Foreign Exchange

[US Dollar] The US Dollar Index plunged 0.83% to a three-month low

The US Dollar Index faced significant selling pressure on Wednesday. Intervention by the US Treasury in the long-end bond market to suppress yields reduced the appeal of the USD as a carry trade vehicle, pushing the index below the 99 level. At the New York close, the ICE US Dollar Index fell 0.83% to 98.662, marking a new three-month low.

The US dollar weakened broadly against major global currencies. The EUR/USD rose 0.78% to $1.16640, while the GBP/USD gained 0.48% to $1.3597.

[Renminbi] Offshore Renminbi strengthened significantly, hitting a monthly high

At the New York close, the USD/CNH rate fell sharply by 150 pips from the previous session's close to 6.7301 yuan, setting a new monthly low for the dollar. The broad weakness in the greenback drove the passive appreciation of the Renminbi.

[Virtual Assets] The cryptocurrency market strengthened, with Bitcoin breaking above $68,000 to record its largest single-day gain since March

The cryptocurrency market surged across the board on Wednesday. Intervention by the US Treasury in the long-end bond market led to lower bond yields and a weaker US dollar, simultaneously heating up safe-haven and hedging demand. This pushed Bitcoin up as much as 7.7% to $69,523, its highest level since June 2, before it finally closed at $68,383.

– Commodities

[Energy] Ongoing tensions in the Middle East continue to push oil prices higher, with WTI crude surpassing $85.

International oil prices extended their gains on Wednesday. Geopolitical tensions in the Middle East continued to fuel supply-side uncertainty, while a significant weakening of the US dollar provided dual support for oil prices. At the New York close, US crude oil futures rose 1.05% to settle at $85.83 per barrel; Brent crude futures gained 0.66% to settle at $91.62 per barrel.

[Precious Metals] The sharp plunge in the US dollar drove gold soaring by over 4%, breaking through the $4,500 mark.

Precious Metals:Gold prices surged dramatically as the US Dollar Index plummeted to a three-month low and US Treasury yields declined significantly, jointly pushing gold prices above the $4,500 integer threshold. At the New York close, spot gold jumped 4.3% to $4,523.08 per ounce; US gold futures rose 3.62% to $4,580.70 per ounce.

Metals Futures Market:At the New York close, spot silver soared 5.8% to $67.008 per ounce; US silver futures gained 4.83% to $67.13 per ounce; LME copper rose 0.4% to $14,053 per tonne.

[Disclaimer]

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