Guotai Haitong: Hawkish Wosh Trade Comes to Fruition, Stock Market Volatility Rises

Cathay Securities and Haitong Securities released a research report stating that last week, emerging markets’ gains narrowed while developed markets remained flat. Trump’s nomination of Jerome Powell as Federal Reserve Chair led to hawkish trading, with safe-haven assets and commodities declining. On the liquidity front, due to the hawkish stance of the Fed Chair nominee, expectations for rate cuts weakened. Fundamentally, last week, profit expectations for the Japanese and European stock markets were revised upward, with high-frequency economic indicators in Europe and the U.S. also showing upward revisions.

Cathay Securities and Haitong Securities Key Points:

Market Performance: Last week, emerging markets’ gains narrowed. In equities, MSCI Global +0.2%, with MSCI Developed Markets +0.0% and MSCI Emerging Markets +1.4%. In bonds, the U.S. 10-year Treasury yield rose the most. Commodities saw crude oil surge significantly, while gold and silver pulled back. In currencies, the dollar depreciated, the pound and yen appreciated, and the yuan depreciated. Last week, global energy sectors rose across the board. Chinese stocks performed relatively strongly in cyclicals, while European and American utilities and communications sectors outperformed.

Trading Sentiment: Global markets generally increased trading volume last week, with volatility rising across major indices. In terms of trading volume, A-shares, Hong Kong, U.S., European, and Japanese stocks all increased, while Korean stocks declined. Sentiment-wise, Hong Kong investors’ sentiment rose compared to the previous week, reaching a historical high, while U.S. investor sentiment also remained at a historic high. Regarding volatility, last week, Hong Kong, U.S., European, and Japanese stocks saw increased volatility, while U.S. bond volatility declined. Valuation-wise, both developed and emerging markets’ valuations increased compared to the previous week.

Earnings Expectations: Last week, profit forecasts for Japanese and European stocks were revised upward. Comparing across regions, as of January 30, 2026, the profit expectation revisions for Japanese stocks in 2025 were the most positive, with U.S. and European stocks following, and Hong Kong stocks performing the worst. Specifically: 1) Hong Kong profit expectations were revised upward, with Hang Seng Index 2025 EPS forecast from -2.1% to -2.0%. 2) U.S. profit expectations were revised upward, with S&P 500 2025 EPS forecast from +10.5% to +11.8%. 3) European profit expectations were revised upward, with Euro Stoxx 50 2025 EPS forecast from -4.5% to -4.4%.

Economic Outlook: U.S. high-frequency economic indicators showed a rebound last week. Over the past week, the Citibank U.S. Economic Surprise Index rose, possibly due to stronger-than-expected corporate earnings and easing Greenland disputes; the European Economic Surprise Index also improved, possibly supported by Q4 GDP growth exceeding expectations and Greenland dispute easing; China’s Economic Surprise Index marginally improved, possibly driven by policies related to real estate, services, and consumption, as well as easing China-UK relations.

Capital Flows: Hawkish Jerome Powell elected as the next Fed Chair. Regarding central bank policy rates, the January Fed decision kept rates unchanged, and Trump’s nomination of Jerome Powell as the new Fed Chair triggered hawkish market expectations. As of January 30, market expectations for the Fed to cut rates 2.1 times in 2026, slightly lower than the previous week. U.S. dollar liquidity remained stable, with the SOFR-OIS spread narrowing compared to last week. On a global micro liquidity level, in November, funds mainly flowed into Mainland China, the U.S., South Korea, India, and Europe; last week, the largest incremental funds in Hong Kong stocks came from the Stock Connect.

Risk Warnings: Some indicators are estimates; Fed rate cuts may occur faster than expected; policy uncertainties surrounding Trump.