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

Guotai Haitong released a research report stating that last week, emerging markets’ gains narrowed while developed markets remained flat. The nomination of Fed Chair candidate Waller by Trump triggered “hawkish” trading, with safe-haven assets and non-ferrous metals leading declines. In terms of liquidity, due to the hawkish stance of the Fed Chair nominee, expectations for Fed rate cuts weakened. On the fundamentals side, last Sunday, profit expectations for global stocks and European stocks were upwardly revised, with high-frequency economic indicators for the US and Europe showing improved outlooks.

Guotai Haitong’s main views are as follows:

Market Performance: Last week, gains in emerging markets narrowed. In equities, MSCI Global +0.2%, with MSCI Developed Markets +0.0% and MSCI Emerging Markets +1.4%. In bonds, the US 10-year Treasury yield rose the most. Commodities saw a significant surge in crude oil, while gold and silver experienced notable pullbacks. In currencies, the US dollar depreciated, the British pound appreciated, the Japanese yen appreciated, and the Chinese yuan depreciated. Last week, the global energy sector rose across the board, Chinese stocks showed a cyclical strength bias, and utilities & communications in Europe and the US performed better.

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 stocks, US stocks, European stocks, and Japanese stocks all increased, while Korean stocks declined. Sentiment-wise, Hong Kong investor sentiment rose week-over-week to a record high, and US investor sentiment remained at historic highs. Regarding volatility, last week, volatility increased for Hong Kong, US, European, and Japanese stocks, while US Treasury volatility declined. Valuation-wise, both developed and emerging markets saw valuation increases compared to the previous week.

Earnings Expectations: Last Sunday, profit expectations for global stocks and European stocks were upwardly revised. Comparing across regions, as of 2026/1/30, last week’s profit expectations for 2025 showed the best marginal change in Chinese stocks, followed by US stocks and European stocks, with Hong Kong stocks performing the worst. Specifically: 1) Hong Kong profit expectations were revised upward, with Hang Seng Index 2025 EPS expectations from -2.1% to -2.0%. 2) US profit expectations were revised upward, with S&P 500 2025 EPS expectations from +10.5% to +11.8%. 3) European profit expectations were revised upward, with Euro Stoxx 50 2025 EPS expectations from -4.5% to -4.4%.

Economic Outlook: High-frequency economic indicators in the US showed a rebound last week. Over the past week, the Citibank US Economic Surprise Index rose, possibly due to stronger-than-expected corporate earnings reports and easing of Greenland disputes; the European Economic Surprise Index also rebounded, possibly supported by higher-than-expected Q4 GDP growth and easing of Greenland disputes; the Citibank China Economic Surprise Index marginally improved, possibly driven by policies related to real estate, services consumption, and easing of China-UK relations.

Capital Flows: Hawkish Waller elected as the next Fed Chair. Regarding central bank policy rates, the January Fed decision kept rates unchanged, and the market’s hawkish expectations were triggered by Trump’s nomination of Waller as the new Fed Chair candidate. As of 1/30, market expectations for the Fed to cut rates 2.1 times over 26 years slightly decreased compared to the previous week. US dollar liquidity remained relatively 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 US, South Korea, India, and Europe; last week, the largest incremental funds in Hong Kong stocks came from the Hong Kong Stock Connect.

Risk Warnings: Some indicators are estimates; faster-than-expected Fed rate cuts; uncertainty in Trump’s policies.