The Fed’s rate decision is imminent; global assets are splitting to the extreme, with China’s A-share market showing an independent rally
In the early hours of Thursday Beijing time, the U.S. Federal Reserve will conclude what is arguably its most closely watched rate meeting this year. Before that, global asset markets are going through an extreme split and game of tug-of-war: Wall Street is collectively falling amid risk-off sentiment, while A-shares have carved out a highly impactful, independent rally. This divergence is not accidental—it is the result of a complex interplay of macro expectations, political pressure, and industry fundamentals. The market is waiting for the “sword” that has been hanging for half a month to finally fall, and perhaps the true start of repricing comes at the moment it drops.
From a macro perspective, the Fed’s policy path is facing unprecedented complexity. Kevin Warsh, the newly appointed chair, is tackling his first rate decision, which is not only about economic data but also a balancing act between politics and economics. Although he sent hawkish signals at the Jackson Hole symposium, stressing that the Fed will not stop until inflation returns to the 2% target, political forces in the White House— including Trump and Vice President Vance—have continued to pressure for lower rates to stimulate growth. This internal tension means the Fed’s decision-making is no longer based purely on economic models, but is also influenced by considerations of political consequences. At the same time, inflation data remains stubborn: in August, U.S. CPI year-on-year held at 3.4%; core CPI year-on-year inched higher by 0.3% month-on-month, exceeding expectations. This is compounded by Brent crude returning above $100, the energy index surging 16.3% year-on-year, and gasoline prices skyrocketing by 27.4%—all of which point to sticky inflation. Add to that nonfarm payrolls of 162,000, far above expectations, and market concerns that the Fed will keep tightening—or even tighten further—have been pushed to their highest level.
Against this backdrop, market pricing for the Fed has swung dramatically. Earlier, after CPI data was released, the probability of a rate hike jumped quickly from 60% to 86.5%, and ultimately exceeded 90%. Big banks such as Goldman Sachs, JPMorgan, and HSBC also collectively revised their views within the same week, shifting from “hold steady” to supporting “a rate hike in September.” This expectation directly transmitted to the bond and commodities markets: the yield on the 10-year U.S. Treasury ended at 5.006%, the first time since July 2007 it has broken above the 5% threshold; and WTI crude prices broke through $105. A high-rate environment naturally weighs on growth stocks, because the valuation of technology companies depends heavily on discounting future cash flows—rising rates significantly reduce their valuation appeal. In theory, on the eve of a hike, rate-sensitive growth sectors such as China’s STAR Market (科创50) and semiconductors should face pressure. Yet A-shares have followed the opposite logic.
Today’s performance in A-shares can be described as a “breakout against the trend.” The Shanghai Composite rose just 27 points, appearing relatively flat, but the underlying structure was full of highlights. The STAR 50 index surged 4.14%. Hard-tech sectors—including semiconductors, CPO, lithography machines, and memory chips—erupted across the board, with multiple stocks hitting the daily limit-up. Over the entire market, more than 4,100 stocks climbed, and trading volume expanded to 1.84 trillion yuan, up by 226.4 billion yuan from the previous trading day. This volume-driven rally is not without foundation. Its core logic is “pricing-in that the downside is over.” Over the past two weeks, the rate-hike expectations—reflected through fluctuations in U.S. Treasury yields, the dollar exchange rate, and oil prices—have been digested repeatedly by the market. When “bad news” becomes consensus, and the long-awaited shoe is about to drop, the funds that previously left due to concern start to flow back in, helping repair sentiment. In addition, semiconductors have independent industry support: domestic support policies have continued to intensify, and industry logic in areas such as AI computing power and advanced packaging has not changed due to Fed policy. Even analysts at U.S. banks have raised their forecast for the global chip market size in 2030 from $2.7 trillion to $3.2 trillion, arguing that orders and capacity commitments have not slowed. With this strength from both inside and outside, A-share tech stocks are willing to run ahead of the rate decision.
Looking ahead to the Fed’s rate decision in the early hours of tomorrow, the market mainly faces three scenarios. The first is a “moderate hike”: a 25-basis-point increase, but the dot plot implies at most one more hike in the rest of the year. This is the path most consistent with current expectations. Once the downside is realized, U.S. stocks are likely to rebound, and the strength in A-shares would also be confirmed. The second is an “unexpectedly dovish Fed”: no hike, but with tough language. Given the meeting on October 28 is approaching the U.S. midterm elections on November 3, the Fed is very likely to avoid acting at such a sensitive juncture. If it chooses to hold steady instead, it could become an upside surprise and point to a rebound in risk assets as well. The third is an “aggressive hawkish turn”: a 25-basis-point hike and signals that subsequent hikes will be large as well. Although this is less likely—since the new chair has only been in office for four months and faces significant political pressure, the political cost of consecutive large hikes would be high—if it does happen, U.S. stocks would face short-term pressure, and A-shares could also face pullback risk.
Overall, the first two scenarios dominate, and the market outcome most likely points to a rebound. But this rebound would be more about sentiment and positioning repair than a fundamental reversal of the trend. Under the pressure of 5% U.S. Treasury yields and the $100-plus oil price, the valuation ceiling for U.S. stocks is still clear, limiting upside. For A-shares, sector rotation in Q4 is speeding up, making it harder to “make money.” Today’s 4.14% rise in the STAR 50 reflects more of a dash-and-follow-up than a sustained, structural trend. Whether the strength can continue still depends on how global markets respond to the final Fed decision. No matter the outcome, the lingering uncertainty will soon be resolved, and the market will shift from a “guessing mode” to an “execution mode.” For investors, this is not just routine Fed business—it is also an important window for observing global macro liquidity inflection points and the resilience of the technology industry. Once the decision is in, the answer will be revealed. The next move will depend on how the market digests this set of facts, and whether the industry fundamentals can provide ongoing support.
Follow me—my next post will be a quick read of the market so you don’t miss anything.
In the early hours of Thursday Beijing time, the U.S. Federal Reserve will conclude what is arguably its most closely watched rate meeting this year. Before that, global asset markets are going through an extreme split and game of tug-of-war: Wall Street is collectively falling amid risk-off sentiment, while A-shares have carved out a highly impactful, independent rally. This divergence is not accidental—it is the result of a complex interplay of macro expectations, political pressure, and industry fundamentals. The market is waiting for the “sword” that has been hanging for half a month to finally fall, and perhaps the true start of repricing comes at the moment it drops.
From a macro perspective, the Fed’s policy path is facing unprecedented complexity. Kevin Warsh, the newly appointed chair, is tackling his first rate decision, which is not only about economic data but also a balancing act between politics and economics. Although he sent hawkish signals at the Jackson Hole symposium, stressing that the Fed will not stop until inflation returns to the 2% target, political forces in the White House— including Trump and Vice President Vance—have continued to pressure for lower rates to stimulate growth. This internal tension means the Fed’s decision-making is no longer based purely on economic models, but is also influenced by considerations of political consequences. At the same time, inflation data remains stubborn: in August, U.S. CPI year-on-year held at 3.4%; core CPI year-on-year inched higher by 0.3% month-on-month, exceeding expectations. This is compounded by Brent crude returning above $100, the energy index surging 16.3% year-on-year, and gasoline prices skyrocketing by 27.4%—all of which point to sticky inflation. Add to that nonfarm payrolls of 162,000, far above expectations, and market concerns that the Fed will keep tightening—or even tighten further—have been pushed to their highest level.
Against this backdrop, market pricing for the Fed has swung dramatically. Earlier, after CPI data was released, the probability of a rate hike jumped quickly from 60% to 86.5%, and ultimately exceeded 90%. Big banks such as Goldman Sachs, JPMorgan, and HSBC also collectively revised their views within the same week, shifting from “hold steady” to supporting “a rate hike in September.” This expectation directly transmitted to the bond and commodities markets: the yield on the 10-year U.S. Treasury ended at 5.006%, the first time since July 2007 it has broken above the 5% threshold; and WTI crude prices broke through $105. A high-rate environment naturally weighs on growth stocks, because the valuation of technology companies depends heavily on discounting future cash flows—rising rates significantly reduce their valuation appeal. In theory, on the eve of a hike, rate-sensitive growth sectors such as China’s STAR Market (科创50) and semiconductors should face pressure. Yet A-shares have followed the opposite logic.
Today’s performance in A-shares can be described as a “breakout against the trend.” The Shanghai Composite rose just 27 points, appearing relatively flat, but the underlying structure was full of highlights. The STAR 50 index surged 4.14%. Hard-tech sectors—including semiconductors, CPO, lithography machines, and memory chips—erupted across the board, with multiple stocks hitting the daily limit-up. Over the entire market, more than 4,100 stocks climbed, and trading volume expanded to 1.84 trillion yuan, up by 226.4 billion yuan from the previous trading day. This volume-driven rally is not without foundation. Its core logic is “pricing-in that the downside is over.” Over the past two weeks, the rate-hike expectations—reflected through fluctuations in U.S. Treasury yields, the dollar exchange rate, and oil prices—have been digested repeatedly by the market. When “bad news” becomes consensus, and the long-awaited shoe is about to drop, the funds that previously left due to concern start to flow back in, helping repair sentiment. In addition, semiconductors have independent industry support: domestic support policies have continued to intensify, and industry logic in areas such as AI computing power and advanced packaging has not changed due to Fed policy. Even analysts at U.S. banks have raised their forecast for the global chip market size in 2030 from $2.7 trillion to $3.2 trillion, arguing that orders and capacity commitments have not slowed. With this strength from both inside and outside, A-share tech stocks are willing to run ahead of the rate decision.
Looking ahead to the Fed’s rate decision in the early hours of tomorrow, the market mainly faces three scenarios. The first is a “moderate hike”: a 25-basis-point increase, but the dot plot implies at most one more hike in the rest of the year. This is the path most consistent with current expectations. Once the downside is realized, U.S. stocks are likely to rebound, and the strength in A-shares would also be confirmed. The second is an “unexpectedly dovish Fed”: no hike, but with tough language. Given the meeting on October 28 is approaching the U.S. midterm elections on November 3, the Fed is very likely to avoid acting at such a sensitive juncture. If it chooses to hold steady instead, it could become an upside surprise and point to a rebound in risk assets as well. The third is an “aggressive hawkish turn”: a 25-basis-point hike and signals that subsequent hikes will be large as well. Although this is less likely—since the new chair has only been in office for four months and faces significant political pressure, the political cost of consecutive large hikes would be high—if it does happen, U.S. stocks would face short-term pressure, and A-shares could also face pullback risk.
Overall, the first two scenarios dominate, and the market outcome most likely points to a rebound. But this rebound would be more about sentiment and positioning repair than a fundamental reversal of the trend. Under the pressure of 5% U.S. Treasury yields and the $100-plus oil price, the valuation ceiling for U.S. stocks is still clear, limiting upside. For A-shares, sector rotation in Q4 is speeding up, making it harder to “make money.” Today’s 4.14% rise in the STAR 50 reflects more of a dash-and-follow-up than a sustained, structural trend. Whether the strength can continue still depends on how global markets respond to the final Fed decision. No matter the outcome, the lingering uncertainty will soon be resolved, and the market will shift from a “guessing mode” to an “execution mode.” For investors, this is not just routine Fed business—it is also an important window for observing global macro liquidity inflection points and the resilience of the technology industry. Once the decision is in, the answer will be revealed. The next move will depend on how the market digests this set of facts, and whether the industry fundamentals can provide ongoing support.
Follow me—my next post will be a quick read of the market so you don’t miss anything.
