CITIC Securities: The market's pricing power over inflation is rapidly waning, and the long-end pricing anchor has clearly shifted to the "growth/AI cycle."

CITIC Securities released a research report noting that U.S. September CPI came in at 3.7% year-over-year and PPI at 6.3% year-over-year, both exceeding expectations in succession, but the reaction in long-end U.S. Treasury yields rapidly faded within 24 hours: after the CPI release on October 14, the 10-year U.S. Treasury yield first spiked about 13bp to 5.325%, then gave back the gains and closed lower; by the time PPI was released on October 15, the 10-year yield rose only marginally by about 2.5bp, the 30-year yield fell directly, and the 10-year then quickly retreated to around 5.048%. We judge that the market's pricing power over inflation is rapidly exhausting, and the long-end pricing anchor has clearly shifted to the "growth/AI cycle"the "recession" it prices is essentially the tail risk of a downturn in the AI capital expenditure cycle, rather than a traditional demand recession, and can coexist with stagflation. At present, this remains left-side exploratory pricing and does not yet constitute trend confirmation. In the near term, U.S. equities may continue sector rotation, with capital switching from AI themes to energy, defensive daily consumer staples, and healthcare, which may benefit from expectations of a Democratic sweep in the midterm elections. Hong Kong stocks may also benefit from the reversal in overseas AI hardware trades and from fund allocation arising from Indonesia potentially being removed from the MSCI Emerging Markets Index. At the sector level, in addition to dividend plays, we are also bullish on Hong Kong-listed consumer electronics, CXO, and innovative drugs. CITIC Securities released a research report noting that