Market Pricing Power of Inflation Weakens, Long-Term Yields Shift Towards Growth Cycle

CITIC Securities released a research report indicating that the U.S. September CPI rose 3.7% year-on-year, and the PPI increased 6.3%, both exceeding expectations. However, the long-term yields on U.S. Treasuries reacted swiftly and deteriorated. After the CPI was announced on October 14, the 10-year Treasury yield surged about 13 basis points to 5.325%, then retraced and closed lower. By October 15, after the PPI was released, the 10-year yield only rose about 2.5 basis points, while the 30-year yield declined, with the 10-year yield quickly falling back to around 5.048%. The market's pricing power regarding inflation is rapidly depleting, and the long-term pricing anchor has clearly shifted towards the growth/AI cycle. The essence of this pricing decline is the tail risk of the AI capital expenditure cycle downturn, rather than a traditional demand recession, and it can coexist with stagflation. Currently, it remains a left-side exploratory pricing, and has not yet formed a trend confirmation. In the short term, U.S. stocks may continue to experience sector rotation, with funds shifting from AI themes to energy, defensive attributes of daily consumption, and healthcare, which may benefit from expectations of a Democratic sweep in the midterm elections. Hong Kong stocks may also benefit from the reversal of overseas AI hardware transactions, as well as the fund allocation resulting from Indonesia's removal from the MSCI Emerging Markets Index.

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