The recurring conflict in the Middle East has reignited market expectations of interest rate hikes, shifting attention to upcoming statements from the FOMC. Domestically, the economy displays a K-shaped divergence, with robust exports contrasting against weak domestic demand. While the A-share market is swiftly absorbing previously overcrowded risks, the potential for further decline appears limited, suggesting a continued rebalancing as markets stabilize.
Overseas, renewed volatility in US-Iran negotiations has driven a sharp increase in oil prices, fueling tightening expectations and a rapid rise in US bond yields and the dollar. This has dampened global risk appetite. Looking ahead, tightening dollar liquidity in the first half of the year is expected to gradually suppress growth in Q3, with a potential slowdown in the July manufacturing PMI already evident. Key focus will be on employment, inflation data, and FOMC communications.
Domestically, the year-on-year GDP deflator turned positive for the first time in Q2 2026, and June economic data showed marginal stabilization. The structural trend of strong supply and weak demand persists, with robust external demand and new growth drivers contrasting against weak domestic demand and traditional investment. In the second half of the year, lower durable goods base effects and diminishing oil price shocks may lift social retail sales growth from its low first-half levels. However, a broad-based recovery still depends on the accelerated implementation of existing policies and a substantive rebound in domestic demand.
In terms of market strategy, the bond market has been trading sideways since July, awaiting direction amid low volatility in funding rates. Last week, regional city and rural commercial banks cut deposit rates, triggering a brief decline in bond yields, but this did not break the consolidation pattern. In the short term, the central bank retains strong control over liquidity, making a significant drop in the funding rate central tendency unlikely. The funding rate's directional guidance for the bond market remains weak. Government bond supply and approaching key technical levels also constrain long-term bond yields from declining. Attention will be on the late July Politburo meeting statements; a further decline in bond yields may require a resurgence of rate cut or RRR cut expectations.
Regarding the A-share market, the market is rapidly digesting previously overcrowded risks, though this process may not be fully complete. Looking to August, the market still needs to consolidate and stabilize, but the room for further decline is likely limited. First, the profit cycle is still on a stable recovery path with no risk of a sharp downturn. Second, risk appetite could be supported by expectations of a US visit around September. Third, most sentiment cycle indicators have entered the fear zone near the bottom. Key focus should be on the pace at which micro-level liquidity risks ease, which should allow the market to gradually stabilize.
For Hong Kong stocks, their weakness since 2026 has been driven by the dual pressures of weak domestic demand and a sluggish property sector, alongside tight dollar liquidity. Stabilizing Chinese growth and a rising inflation center in the future should benefit Hong Kong stock earnings improvement. As the phase of acute dollar liquidity tightening passes, relatively more accommodative funding conditions are expected to provide support for Hong Kong stocks.
On the commodities front, geopolitical twists have driven a recent sharp rise in oil prices. Short-term oil prices are expected to continue wide-range fluctuations, with the overall price center remaining higher than before the US-Iran conflict broke out. For gold, it remains under pressure from tight liquidity in the short term, but this appears largely priced in. A phase of dollar weakening could be positive for gold.
Risk reminder: Gold prices have been highly volatile recently. Investors should fully understand the risks before investing in gold funds and make decisions carefully based on their own risk tolerance. Continuously monitor global macroeconomic trends, central bank gold purchases, and relevant policy dynamics.
Disclaimer: The information in this report is sourced from public data, and the company makes no guarantees regarding its accuracy or completeness. Under no circumstances does the information or opinions expressed herein constitute the company's actual investment results or provide investment advice. Unless otherwise stated, data sources are Wind, Bloomberg, or Bosera Funds. The copyright of this report belongs to Bosera Fund Management Co., Ltd. Investment involves risk, choose carefully.