The Middle East situation showed a path toward de-escalation during the week of April 6-10, 2026, with the Strait of Hormuz serving as the core anchor for market pricing. On April 7, U.S. President Donald Trump significantly increased pressure on Iran, explicitly warning that if an agreement was not reached by 8:00 PM Eastern Time, the U.S. would strike civilian infrastructure, including bridges and power plants. He stated that the Iranian regime could soon be "eliminated" and reiterated demands for Tehran to allow vessel passage through the Strait of Hormuz, bringing geopolitical conflict to the brink of extreme escalation. Subsequently, on April 8, the situation eased as the U.S., Israel, and Iran agreed to a two-week temporary ceasefire. Iran consented to open the Strait of Hormuz during this period, marking a rapid cooling of tensions from earlier in the week. Previously, Trump had warned that failure to reach a deal would lead to the "demise of entire civilization," further highlighting the phase of extreme conflict.
Asset price movements reflected this temporary de-escalation, with commodity prices declining notably before fluctuating again as conflicts resurfaced. As of the close on April 10, 2026, COMEX gold futures were priced at $4,748.50 per ounce, and COMEX silver futures at $76.65 per ounce. In crude oil, Brent futures stood at $95.20 per barrel, while WTI futures were at $96.57 per barrel. Spot Brent crude prices fell sharply from a high of $144.59 per barrel on April 7 to $126.59 on April 10, dropping nearly $18, indicating a correction in extreme pricing for energy supply disruptions amid ceasefire expectations and temporary easing.
U.S. inflation rose significantly, driven by a sharp increase in energy prices, but core inflation remained relatively mild, highlighting a strengthening divergence in structural trends. The March 2026 U.S. CPI increased by 3.3% year-over-year, up from the previous 2.4%, reaching its highest level since May 2024, though slightly below market expectations of 3.4%. Month-over-month, it rose 0.9%, the largest increase since June 2022, indicating a notable short-term price momentum. In contrast, core CPI rose 2.6% year-over-year, a slight increase from 2.5% but below the expected 2.7%, with a 0.2% monthly rise also below forecasts, suggesting that inflationary pressures remain relatively controllable excluding energy. Detailed items showed services prices excluding energy rose 0.2% monthly and 3% annually, while housing prices increased 0.3% monthly and 3% annually, maintaining moderate growth. The food component was flat monthly, with household food prices down 0.2%, indicating marginal declines in some consumer goods prices and no significant spread of underlying inflation pressures. Structurally, this round of inflation was primarily driven by the energy component, with price transmission showing a single-source characteristic. The energy index surged 10.9% monthly in March, the largest monthly increase since 2005, with gasoline prices up 21.2%, the highest since 1967, contributing significantly to overall inflation.
Global equity markets generally rebounded during the week, but internal structural divergence persisted, reflecting a mix of phased risk recovery and structural reallocation amid geopolitical uncertainties. Major indices mostly advanced, with Asia-Pacific and technology growth sectors performing relatively well. The Nikkei 225 rose 7.154%, leading gains, while the Nasdaq gained 4.311% and the Hang Seng Tech Index increased 3.872%, indicating some recovery in growth sectors after previous adjustments. In Europe and the U.S., the S&P 500 rose 3.676%, the Dow Jones Industrial Average gained 3.615%, France's CAC 40 advanced 3.559%, Germany's DAX increased 2.758%, and the UK's FTSE 100 rose 1.602%.
From a relative valuation perspective, Hong Kong stocks maintained a discount compared to A-shares, but the divergence pattern showed little change. As of April 10, 2026, the Hang Seng AH Premium Index stood at 118.20, down slightly from 119.19, remaining in the medium-to-high historical range, indicating a persistent valuation discount for Hong Kong stocks relative to A-shares with limited marginal change.
Risk warnings include: 1) slower-than-expected improvement in overseas liquidity; 2) escalation of geopolitical conflicts and energy supply disruptions; and 3) increased exchange rate volatility risks.
The market's implied volatility declined noticeably but remained in the medium-to-high range, indicating that risk pricing had not fully cleared. The VIX index fell from 25.78 on April 7 to 19.49 by April 9, reflecting a reassessment of extreme risks amid temporary geopolitical easing. Although lower than previous highs above 30, volatility stayed above historical low ranges, suggesting lingering uncertainties.
Trading volume in Hong Kong remained relatively high but displayed clear internal divergence, with activity focused on structural bets. The total market capitalization of southbound constituent stocks was approximately HK$67.23 trillion, with turnover around HK$1,127.38 billion. More stocks advanced than declined, indicating improved market sentiment, but structural divergence persisted amid index fluctuations.
Southbound capital turned to net outflows, with weekly net outflows reaching HK$117.96 billion by April 10, reflecting a shift from sustained inflows to temporary withdrawals. Despite this, year-to-date net inflows remained positive at HK$2,162.83 billion, suggesting the overall allocation trend may not have fundamentally reversed.
Sector performance in Hong Kong showed broad recovery but significant internal divergence. Industrials led with a 5.89% gain, followed by raw materials and conglomerates. In contrast, energy fell 1.40%, and healthcare declined 0.90%, indicating pressure on defensive and resource sectors.
Valuation analysis revealed a split pattern: mainboard Hong Kong indices traded at high historical percentile rankings, while tech sector valuations, though recovering, remained at low-to-medium percentiles. U.S. stocks maintained high absolute valuations with elevated percentile rankings.
The Hang Seng Index's equity risk premium calculated against Chinese and U.S. government bonds reached extremely low historical percentiles, indicating compressed risk compensation amid high interest rates. With the index trading above its historical mean but constrained by利率 constraints, further gains would depend more on earnings recovery or liquidity improvements.
Hong Kong's liquidity environment remained tight due to high U.S.利率 and the linked exchange rate system, continuing to pressure valuations. The USD/HKD exchange rate hovered near the weak end of the convertibility band around 7.84.
Given elevated external uncertainties and unresolved利率 constraints, markets are in a phase of compressed risk premiums alongside declining volatility. While Hong Kong stocks retain valuation discounts relative to other markets, limited valuation expansion potential suggests opportunities will likely remain structural, dependent on earnings recovery and sustained capital inflows.