Federal Reserve Credit and Yen Intervention Heat Up Simultaneously, High Funding Costs Reshape Global Asset Pricing
On August 3, global markets showed significant divergence last week. The earnings reports from tech giants reaffirmed that AI capital expenditures have not slowed down, with Microsoft, Google, and Amazon driving a strong rebound in the semiconductor sector. South Korea's semiconductor exports increased by nearly 180% year-on-year, and the KOSPI index recorded its largest single-day gain in history, indicating that the market has not dismissed the long-term growth logic of AI but is instead re-evaluating companies with genuine cash flow and profitability. However, the factors truly dominating global asset prices have gradually shifted from corporate fundamentals to the repricing of capital costs.
In July, the Federal Reserve kept interest rates unchanged, but three officials publicly advocated for rate hikes. Additionally, Waller proposed reducing the frequency of FOMC meetings and continuing to weaken forward guidance, forcing the market to interpret economic data with less information, which led to a rapid rise in long-term U.S. Treasury yields. This reflects not an expectation of higher rates but a demand for higher risk premiums, reassessing the credibility of the Fed's inflation control policies. When the 30-year yield reached a multi-year high, even strong fundamental assets must endure higher discount rate pressures.
On the other hand, Japan and the U.S. have rarely intervened together in the yen, indicating another significant change in the global capital markets. Japan is no longer just defending its currency but is also trying to prevent the continued depreciation of the yen from further impacting the Japanese bond market, potentially transmitting through the U.S. bond market to the global financial system. If the U.S. and Japan continue to intervene jointly, it will increase the pressure on arbitrage trading to close positions, posing new risks of liquidity contraction globally. Therefore, the importance of the yen situation is not just the exchange rate itself but the fact that the largest source of arbitrage funds globally is beginning to face policy restrictions. It is worth noting that the situation in the Middle East remains filled with ambiguous signals. Although there has been progress in U.S.-Iran negotiations, both Iran and Israel maintain hardline positions, and the issue of opening the Strait of Hormuz has not been genuinely resolved. The recent drop in oil prices reflects a temporary reduction in risk premiums rather than a resolution of geopolitical risks. As long as there is uncertainty in energy supply, the Federal Reserve will still find it difficult to ignore the pressures of imported inflation.
This week, the market will welcome important data such as ISM, JOLTs, ADP, and non-farm payrolls, while earnings reports from companies like Palantir, AMD, and SpaceX will provide crucial validation of whether AI demand continues to expand. However, compared to whether companies can continue to deliver impressive results, the market is more concerned about whether high interest rates, high yields, and global liquidity contraction are beginning to erode the valuations of risk assets. In the coming period, the key factor determining market direction will no longer just be whether companies can grow, but whether global capital is willing to continue paying higher capital costs for high valuations.
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