Stocks Soar Solo Amid USD and CNY Strength, While Commodities and Bonds Stumble

Over the past few weeks, the global financial market has revolved largely around two main themes: "rate cut trades" and "recession trades." Yet, the last three trading days have revealed two distinct new features. Firstly, while stock markets have independently risen, the commodity and bond markets have faltered. Secondly, both the US Dollar (USD) and the Chinese Yuan (CNY) have strengthened simultaneously. As for the stock market's solo ascent, several factors are at play. One significant element is the improvement in corporate earnings, mainly driven by better supply-side conditions. For instance, supply chain recovery and technological advancements have bolstered market sentiment without necessarily causing a spike in commodity prices. Notably, political figures' changing stances on traditional energy sources and an increase in OPEC+ production expectations have led to optimistic forecasts for energy supply stability. Additionally, the strong performance of mid-term earnings reports has heightened market focus and risk appetite toward the stock market. Regarding the concurrent strengthening of the USD and CNY, the easing of tensions in US-China relations has been a contributing factor. The recent visit by US officials to China has calmed market fears concerning bilateral relations. Alongside this, China’s currency has appreciated due to unique internal factors, such as the central bank's measures to prevent long-term interest rates from falling excessively and the pressure stemming from corporate retention of trade surpluses unconverted into yuan. Looking ahead, it's anticipated that although rate cut trades will remain prevalent, global markets may adopt more diversified trading patterns. This implies that global investment is likely to place increasing emphasis on emerging market risk assets, potentially favoring Chinese assets to some extent. In summary, recent movements indicate a nuanced shift in global financial markets, characterized by an uncorrelated rise in stock prices, weakened commodities and bonds, and simultaneous strengthening of the USD and CNY. These dynamics hint at a more complex and diversified trading environment moving forward.