We believe that the FOMC meeting on July 29 will most likely keep interest rates unchanged. Cooling labor market conditions have reduced the urgency for near-term rate hikes, but the Federal Reserve may still lack sufficient grounds to pivot toward rate cuts until core inflation shows a sustained and broad-based decline.
I. Key Highlights
The minutes from the June FOMC meeting, released this week (July 3–10, 2026), indicated that the Federal Reserve’s concerns about inflation risks have intensified further. The policy discussion has gradually shifted from whether to cut rates to whether it may be necessary to maintain high interest rates or even hike further. At the meeting held on June 16–17, the Fed kept the target range for the federal funds rate unchanged at 3.50%–3.75%, though a minority of participants believed that conditions already warranted a rate hike at that time. Most officials projected that inflation would eventually return to the 2% target, but they also acknowledged the risk that price pressures could remain elevated. Nearly all officials holding this latter view agreed that additional rate hikes might be necessary if inflation does not show meaningful signs of easing.
We believe that the FOMC meeting on July 29 will most likely still result in unchanged interest rates. Against the backdrop of marginally slowing employment growth, persistently high inflationary pressures, and significantly weakened forward guidance, the future policy path will depend increasingly on actual developments in inflation, employment, productivity, and the impact of Middle East geopolitical tensions on energy prices. We think that cooling labor market conditions have reduced the urgency for near-term rate hikes, but until core inflation shows sustained and broad-based moderation, the conditions for the Fed to pivot toward rate cuts may remain insufficient.
From a cross-asset pricing perspective, the diverging trends between oil prices and short-end U.S. Treasury yields may reflect a shift in the Fed’s primary constraint—from energy price shocks to more persistent core inflation. Although Brent crude prices have retreated notably from recent highs, the yield on the U.S. 2-year Treasury note remains above 4%, indicating that markets have not significantly strengthened expectations for rate cuts solely due to lower energy costs. Tariff-related cost pass-through, tight labor supply in certain sectors, and resilient services prices could continue to keep core inflation elevated. Therefore, a decline in oil prices alone may be insufficient to open the door for rate cuts. In the absence of sustained and broad-based softening in core inflation, the likelihood remains relatively high that the Fed will hold rates steady at its next meeting, and the ‘higher for longer’ policy stance is likely to continue influencing asset prices.
$Brent Last Day Financial Futures (SEP6) (BZmain.US)$Relatively$Crude Oil Futures (AUG6) (CLmain.US)$the premium has widened in tandem, possibly signaling that supply disruption expectations are more pronounced in the international seaborne crude oil market. On a spot basis, the Brent–WTI spread widened from $0.83 per barrel on July 3 to $2.81 per barrel on July 10; on a futures basis, the spread expanded from $3.30 per barrel to $4.60 per barrel. Given that Brent crude is more closely linked to European, Middle Eastern, and global seaborne markets, its relatively stronger gains compared to WTI may reflect heightened market concerns over potential disruptions to Strait of Hormuz transit, tanker shipping logistics, and rising insurance costs.
$CBOE Volatility S&P 500 Index (.VIX.US)$has declined to its lowest level in nearly a month, suggesting that market expectations for future volatility continue to stabilize. The VIX Index, derived from S&P 500 index option prices, reflects the market’s pricing of implied volatility over the next approximately 30 days. As of July 10, 2026, the VIX closed at 15.84, down significantly from 22.22 on June 10. Its 5-day, 20-day, and 60-day moving averages have declined to 16.06, 17.04, and 17.39, respectively, placing it around the 29th percentile of its five-year historical distribution—all indicative of relatively low levels. The current VIX reading is now below both its 20-day and 60-day moving averages, suggesting that market expectations for volatility over the next month have cooled, with near-term risk appetite remaining relatively stable.
II. Overseas Market Overview
Global equity markets showed divergent performance this week, with Hong Kong stocks leading gains notably, U.S. technology and growth sectors outperforming, and European and Japanese markets generally retreating. In the Hong Kong market,$Hang Seng TECH Index (800700.HK)$and$Hang Seng Index (800000.HK)$rose by 4.95% and 3.53%, respectively, ranking among the top performers among major indices. Policy tailwinds, a significant rebound in southbound capital flows, and valuation-driven rebounds in previously undervalued sectors collectively boosted market risk appetite. In the U.S. market,$Nasdaq Composite Index (.IXIC.US)$and$S&P 500 Index (.SPX.US)$gained 1.74% and 1.23%, respectively,$Dow Jones Industrial Average (.DJI.US)$while declining by 0.50%, reflecting stronger relative performance in technology and growth sectors compared to traditional value-oriented segments. European and Japanese markets faced downward pressure,$Nikkei 225 (.N225.JP)$and$UK FTSE100 Index (.FTSE.GB)$both declined by 1.70%,$France CAC40 Index (.CAC.FR)$fell by 1.99%,$DEGUODAXZHISHU (.DAX.US)$dropped by 2.76%.
The A+H share premium further widened, indicating that the discount of H-shares relative to A-shares continues to expand. The Hang Seng AH Premium Index rose from 123.30 on July 3 to 124.50 on July 10. Despite a notable increase in the Hang Seng Index this week, the AH premium index still rose by 1.20 points compared to last weekend, reflecting a further widening of the price premium of A-shares over H-shares for comparable companies. This suggests that H-shares still offer relatively attractive valuations in cross-market comparisons.
Risk warnings: 1) Overseas liquidity conditions improve less than expected; 2) Recurring geopolitical conflicts lead to greater-than-expected disruptions in energy prices and supply chains; 3) Market risk appetite recovers less than anticipated.
Editor/melody