Zhongtai International released a research report indicating that Hong Kong stock valuations have undergone significant short-term recovery, with the Hang Seng Index's forward P/E ratio at approximately 11x, essentially returning to 2018-2019 peak levels. Risk premiums are at historical lows, AH premiums have reached six-year lows, and coupled with August being traditionally a seasonal low period for Hong Kong stocks, interim earnings will concentrate on fundamental verification. Some individual stocks may experience "good news realization" profit-taking, making short-term technical corrections normal. However, given abundant capital flows in Hong Kong stocks, any adjustments are expected to be limited in magnitude.

Regarding US markets, July retail sales growth showed orderly deceleration, with PPI exceeding expectations causing rate cut expectations to retreat. However, corporate earnings growth remains robust, with the S&P 500's Q2 earnings growth reaching 11.2% as of last Friday. The US Treasury is replenishing TGA accounts, with ONRRP balances falling to $57.2 billion. Considering the need to issue $1.01 trillion in additional treasury bonds in Q3 to restore TGA account balances to $850 billion (currently $515.4 billion), bank reserves are expected to decline, with US financial system liquidity likely decreasing in coming weeks, suppressing US stock performance.

**Hong Kong Stocks**: July Chinese economic data showed marginal deceleration in economic momentum, with consumption, investment, production, prices, and credit data all below expectations, yet market risk appetite remained resilient. A-shares broke through yearly highs last week with both price and volume increases; Hong Kong Stock Connect recorded its highest single-day net inflow in history on Friday; International Institute of Finance (IIF) data shows $6.03 billion flowed into Chinese equity markets in July. Domestic investor sentiment remains highly positive, combined with some regional foreign capital or hedge fund re-entry, helping boost Hong Kong stock performance.

Markets are pricing approximately 85% probability of Federal Reserve rate cuts in September. Under expectations of narrowing HK-US interest rate differentials, capital flows are expected to continue supporting Hong Kong stock performance. Current Hong Kong stock valuations have undergone significant short-term recovery, with Hang Seng Index forward P/E at approximately 11x, essentially returning to 2018-2019 peak levels. Risk premiums are at historical lows, AH premiums have reached six-year lows, and coupled with August being traditionally a seasonal low period for Hong Kong stocks, interim earnings will concentrate on fundamental verification. Some individual stocks may experience "good news realization" profit-taking, making short-term technical corrections normal. However, given abundant capital flows, any adjustments are expected to be limited.

Based on historical average annual volatility of around 8,000 points over the past 10-15 years, this year's Hang Seng Index highs have not yet been reached. September Fed rate cuts are highly probable, with Chinese policies expected to continue "timely reinforcement" in H2, creating domestic and international policy positive resonance that could help drive Hong Kong stocks to new highs. Under continued rate cut expectations, focus on valuation elasticity in technology innovation (AI/semiconductors) and biomedical sectors, non-bank financials (insurance, securities) benefiting from long-term capital allocation dividends and capital market recovery, and high-dividend assets (utilities, energy, and some consumer staple leaders).

**US Stocks**: July US retail sales growth showed orderly deceleration, with PPI exceeding expectations causing rate cut expectations to retreat. However, corporate earnings growth remains robust, with S&P 500 Q2 earnings growth at 11.2% as of last Friday. The three major US indices remain near highs, with VIX index reaching yearly lows, but market breadth indicators are poor, with equal-weighted S&P 500 and equal-weighted Nasdaq 100 continuing to diverge from market-cap weighted indices. The US Treasury is replenishing TGA accounts, with ONRRP balances falling to $57.2 billion. Considering Q3 requirements to issue an additional $1.01 trillion in treasury bonds to restore TGA account balances to $850 billion (currently $515.4 billion), bank reserves are expected to decline, with US financial system liquidity likely decreasing in coming weeks, suppressing US stock performance. Current strategy does not recommend chasing US stock highs; if indices experience seasonal adjustments, prefer cyclical stocks including banks, semiconductors, software, and industrials.

**US Treasuries**: Ten-year treasury yields oscillate around 4.30%. July US inflation data showed divergence, with CPI remaining moderate supporting easing logic, while PPI exceeded expectations confirming tariff transmission pressure emergence. Combined with retail resilience and stable unemployment claims applications weakening aggressive rate cut necessity. Short-term treasury yields may still face technical rebound pressure from inflation stickiness concerns and Treasury issuance impacts. Strategy recommends continuing opportunistic allocation on rallies, but with clear US manufacturing and services deceleration, subsequent ten-year treasury rate technical rebound space may be limited. Focus on July core PCE and other key data further confirming tariff impacts on inflation.

**USD Index**: Economic data continues driving rate cut expectation volatility. July CPI partial goods inflation cooling supported rate cut logic, but PPI exceeding expectations and rising import prices confirmed tariff transmission pressure emergence, combined with retail resilience weakening aggressive rate cut necessity. Geopolitical disturbances (US-Russia talks easing safe-haven premiums) and policy uncertainties (Trump interference in Fed personnel) create bullish-bearish tug-of-war. USD lacks unilateral drivers, expected to maintain oscillating and weakening pattern short-term. Focus on Jackson Hole symposium signals and global PMI data guidance.

**USD/CNH**: Offshore yuan volatility expanded slightly last week but remained around 7.18 center, with yuan fixing maintaining stable-to-strong bias, confirming policy support intentions. China-US trade ceasefire extended another 90 days to November 10, with technology access for resource supply negotiations continuing. Trade negotiations will transmit to exchange rate volatility, with yuan potentially facing passive pressure testing the 7.18 policy ceiling. Short-term expected to continue 7.15-7.20 range oscillation.

**Risk Warning**: Complex and variable international situations; policy effects below expectations; escalating geopolitical risks.