Global capital markets review: This week (20260123-20260130), Trump's hawkish nomination disturbed market expectations for Federal Reserve policy, while economic resilience and sticky inflation created a monetary policy dilemma, leading the market to price in two Fed rate cuts for 2026. Concerns over Kevin Warsh's perceived hawkish stance pushed the US dollar and 10-year Treasury yields marginally higher. Tighter liquidity expectations, combined with profit-taking at elevated levels, triggered a significant decline in precious metals. 1) In fixed income, the 10-year US Treasury yield recorded 4.26%, and the US Dollar Index stood at 97.1; 2) In equities, South Korean and Argentine stock markets saw notable gains this week. Among A-share indices, the Hang Seng Index, the Hang Seng China Enterprises Index, and the SSE 50 rose considerably, while the CSI Convertible Bond Index, the STAR 50, and the BSE 50 declined. Vietnamese and Japanese stock markets experienced larger drops; 3) For commodities, gold fell 2.01% this week, whereas a concentrated outbreak of geopolitical risks drove crude oil prices up by 7.32%.

This week, Trump formally announced Kevin Warsh as the Federal Reserve Chair. Warsh advocates for a policy mix of "quantitative tightening + rate cuts," positing that: 1) Balance sheet reduction can suppress long-term inflation expectations, thereby creating room for the Fed to implement significant rate cuts; 2) The current extent of rate cuts fails to account for productivity gains driven by AI, emphasizing the future role of supply-side factors in adjusting the natural rate of interest. Compared to other Fed Chair candidates, Warsh is relatively "hawkish" and simultaneously stresses that quantitative tightening essentially eliminates the "Fed put." Following the announcement, the US Dollar Index climbed, while gold and silver prices fell sharply. We believe the core objective of Warsh's policy is to create space for rate cuts by suppressing inflation, emphasizing that simply expanding the balance sheet is not the solution to short-term debt issues, rather than representing pure "hawkishness." Consequently, the central issue remains how future "inflation" will be subdued. We consider that one important potential path for the Fed involves stimulating supply, notably in manufacturing, through rate cuts to alleviate inflation bottlenecks in the medium term, suggesting there remains room for looser US dollar liquidity.

Precious Metals: Still in a short-term phase of volatility reduction and adjustment, awaiting a return to low volatility levels. This week, Trump signaling US-Iran peace talks combined with his nomination of the relatively hawkish Warsh as Fed Chair led to significant declines in both gold and silver prices, dragging industrial metals lower. From a medium-term perspective, we believe Warsh's appointment does not signify a systematic shift towards hawkishness by the Fed, and the medium-term rationale for gold remains intact. Looking at trading indicators, the implied volatility for Shanghai gold remains at historically extreme highs, skew has significantly retreated, and the put-call open interest ratio has also risen from its bottom; a similar pattern is observed for Shanghai silver. Our detailed analysis in the report "Macro Drivers and Micro Trading Indicators of Gold Trends - Framework Report No.8 on Global Asset Allocation Methodology for Gold" examined historical micro-features of Shanghai gold breakouts and peaks. While maintaining a medium to long-term bullish outlook on gold, the indicators signaling the end of this short-term Shanghai gold pullback are the implied volatility, skew, and put-call open interest ratio returning to low levels. Until these conditions are met, gold prices are expected to oscillate within a high range to complete this volatility adjustment. 3) From a commodity relative value perspective, following this sharp adjustment, the gold-silver ratio has rebounded significantly but remains within a downtrend. Anchoring on gold prices to assess oil and copper prices reveals that both oil and copper are in historically high-value regions. Furthermore, the oil-copper ratio indicates that oil is in an extremely undervalued zone.

Crude Oil: Regarding the impact of the recent internal unrest in Iran on oil prices, a short-term price surge appears highly likely. Under a baseline scenario, intensified domestic unrest in the short term, potentially leading to civil war or instability, could cause a sharp decline in production. Stimulated by sentiment, oil prices may spike in the near term. If oil prices rise to $80/barrel in the second half of 2026, US inflation could increase substantially.

Global capital flow tracking: Foreign capital inflows versus domestic capital outflows from Chinese equities. As of 2026/1/30, over the past week, foreign capital flowed into Chinese stock markets while domestic capital flowed out. For overseas funds, active overseas funds saw inflows of $883 million over the past week, while passive overseas funds recorded inflows of $1.741 billion. Regarding domestic versus foreign capital, foreign capital inflows totaled $2.623 billion over the past week, whereas domestic capital outflows amounted to $60.012 billion. Globally, funds flowed into developed market equities over the past week, with significant outflows from emerging market equities. In fixed income funds, US equity markets saw notable inflows of $15.03 billion this week. For equity funds, Chinese stock markets experienced outflows of $57.39 billion. In terms of relative fund inflows, Chinese fixed income funds showed relatively significant inflows recently, and the FTSE Triple Short China ETF saw minor inflows. At the sector level over the past week, US stock funds saw substantial inflows into Technology, Energy, and Industrials, while Utilities experienced significant outflows. In Chinese stock markets, funds flowed into Materials, Technology, and Healthcare.

Global asset valuation indicators: As of 2026/1/30, from a price-to-earnings (P/E) ratio percentile perspective, the valuation of the Shanghai Composite Index is lower than that of the South Korean KOSPI 200 and the S&P 500, but exceeds the French CAC 40, reaching the 92.9th percentile over the past 10 years. However, judging by absolute P/E levels, the valuations of the Shanghai Composite Index, the CSI 300, and the Hang Seng China Enterprises Index remain substantially lower than those of US stocks. From an Equity Risk Premium (ERP) perspective, the ERP percentiles for Brazil's Bovespa, the CSI 300, and the Shanghai Composite Index remain relatively high. From an asset allocation perspective comparing stocks and bonds, Chinese equities still offer attractive allocation value relative to global markets. Looking at risk-adjusted return percentiles as of 2026/1/30, the S&P 500's risk-adjusted return percentile rose to 47%, and the Nasdaq's risk-adjusted return percentile increased from 36% to 39%. The CSI 300's risk-adjusted return percentile climbed from 78% to 80%. The risk-adjusted return percentile for the S&P GSCI Precious Metals index remained persistently at the 100th percentile.

Global asset risk sentiment indicators: For US stocks, at the index level, the S&P 500 was below its 20-day moving average this week, and the put-call ratio decreased compared to last week. For A-shares, in terms of options open interest, the open interest for CSI 300 call options expiring in March 2026 saw a substantial sequential increase around the 5000-point level. Open interest for call options in the 4800-5000 range remains high, indicating strong market expectations for further upside in A-shares. Regarding implied volatility, the implied volatility levels for various strike prices of CSI 300 options showed slight fluctuations and a marginal increase compared to last week.

Global economic data: US inflation and consumption indicators declined, signaling economic cooling. US Economy: US December PPI showed a marginal year-on-year increase. Chinese Economy: December inflation and sentiment indicators strengthened, marginal credit data improved, and import data surged significantly, although CPI and PPI remained stable, further confirming recovery signals. Fed rate cut expectations: As of 2026/1/30, the market is pricing in two Fed rate cuts for 2026. Key economic indicators for next week: China's January official reserve assets and the US January non-farm payrolls data.

Risk warnings: Short-term fluctuations in asset prices may not represent long-term trends; a deep recession in Europe and the US could exceed expectations; significant shifts in US policy direction may occur during Trump's administration.