To The Moon

I. Performance of Global Equity Indices(in US Dollar)

Source: Bloomberg, Tiger Brokers

Key Highlights

◼ Last week, the Federal Reserve delivered a widely expected 25bps rate cut. Internal divergence was limited, and the dot plot shifted lower, suggesting the possibility of 1–2 additional cuts within the year. The SEP revised up growth forecasts while lowering the medium- to long-term inflation outlook. Chair Powell emphasized this move as a “risk-management cut,” reiterating that policy remains data-dependent and future pacing may adjust with economic surprises. We believe markets may be underestimating the downside potential for interest rates, and the benchmark rate could decline to 2.5% next year. In U.S. equities, the main narrative remains intact: AI hardware and growth sectors continue to be the focal point, with limited near-term corrections but potential medium- to long-term risks from stagflation.

◼ In Greater China markets, the U.S. and China made phased progress on the TikTok proposal, sending a positive signal for subsequent tariff and regulatory negotiations. Meanwhile, markets are also eyeing expectations for potential approval of Nvidia’s high-performance chips. In our view, the Fed’s easing cycle has both created policy space and provided opportunities for greater foreign capital inflows. Long-term investment themes remain in AI re-rating, advanced manufacturing, and new consumption/cultural exports. In the near term, investors should be cautious of “buy-the-rumor, sell-the-news” dynamics and pre-holiday volatility; in the medium term, the focus is on further policy implementation; and in the long run, sustained gains will hinge on earnings improvement.

◼ This week’s key focus will be U.S. August PCE data and speeches from Federal Reserve officials.

II. Key Market Themes

U.S. Equities: Rate Cuts Do Not Alter Data Dependence; Market Themes Remain Intact

Last week, the Federal Reserve announced a widely expected 25bps rate cut, officially marking the start of a new easing cycle. Let’s first review the key takeaways:

• Voting results: Internal divergence was smaller than anticipated. Of the 19 FOMC members, only Governor Milan supported a 50bps cut, while the remaining 18 favored 25bps.

• Dot plot: Shifted lower compared with June, in line with market expectations, and suggested another 1–2 cuts by year-end.

• SEP forecasts: GDP growth for year-end was revised upward; near-term inflation expectations remained unchanged, but projections for the coming years were lowered

Source: Bloomberg, federalreserve.gov

Overall, the 50bps cut feared by markets due to excessive labor market weakness did not materialize. On the contrary, Chair Powell emphasized during the press conference that this was a “risk-management cut,” which directly boosted investor confidence in the U.S. economy. We believe Powell continues to adhere to his “data-dependent” principle. The decision to explicitly signal a cut in late August was largely triggered by several particularly weak nonfarm payroll prints. Therefore, the dot plot only reflects current conditions and should not be treated as a definitive policy path. Should employment or inflation data surprise in the coming months, the Fed may adjust the pace of cuts accordingly.

In terms of market pricing, the 2-year Treasury yield has returned to the same level as last September’s rate cut, while the 10-year yield remains 50bps higher. However, given issues such as low survey response rates and distortions from the birth–death model, actual labor conditions may be weaker than reported. Furthermore, due to the lagged nature of inflation transmission along supply chains, we believe the market is underestimating the extent of future rate declines. Our baseline view is that the policy rate could reach 2.5% next year. From an equity perspective, we expect recession-driven trades to fade in the near term. Earnings-driven AI hardware/infrastructure names and rate-sensitive disruptive growth stocks will remain the dominant themes. While short-term liquidity pressures may cap upside and induce shallow pullbacks, the longer term requires vigilance on cumulative inflation risks and the potential emergence of stagflation.

Greater China: Rate Cuts Open Policy Space; Themes of Tech Re-rating and “From Involution to Global Expansion” Remain Intact

In Greater China, last week’s high-level U.S.–China talks progressed smoothly, with both sides reaching a basic consensus on the TikTok proposal. The U.S. government indicated it would issue an executive order confirming that the new plan complies with 2024 legal requirements while granting an additional technical transition period. Markets generally view this as a leading indicator for broader U.S.–China economic and trade negotiations. If successfully implemented, it would create room for further discussions on tariffs and regulatory issues. For example, expectations are rising that higher-performance Nvidia B30A chips could potentially be approved (still uncertain and worth monitoring), which would be a major boost for China’s internet giants.

Meanwhile, according to the Financial Times, China is advancing its “Stargate Project,” building AI data centers in Wuhu and other cities, and integrating fragmented computing power to counter U.S. chip restrictions, aiming to enhance AI capabilities and challenge U.S. dominance. Beyond compute power, there are also positive surprises: OpenAI announced last week it may partner with Luxshare Precision to develop consumer hardware devices. These developments highlight both China’s determination in AI progress and its substantial manufacturing advantages. With the Fed entering a rate-cutting cycle, foreign investors are likely to accelerate their search for opportunities in China’s industrial transformation. Within Greater China assets, we continue to emphasize AI re-rating, advanced manufacturing, and new consumption/cultural exports as long-term themes.

On the policy side, the Fed’s easing cycle has also opened greater room for domestic stimulus in China. On September 17, the Ministry of Commerce and eight other agencies issued a notice on “Several Policy Measures to Expand Service Consumption,” aiming to boost domestic demand with stronger policy support. Objectively, however, both Hong Kong and A-shares are currently at elevated sentiment and technical levels, with greater price volatility and early signs of capital divergence. In our view, the outlook for Greater China assets remains consistent with our prior stance:

• Short term: Be cautious of “buy-the-rumor, sell-the-news” dynamics following the rate cut, as well as calendar effects ahead of the National Day holiday.

• Medium term: Watch for concrete policy implementation over the next two months, with simultaneous supply- and demand-side stimulus.

• Long term: Sustained and broad-based rallies will ultimately depend on earnings improvement.

Source: Bloomberg, CICC

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