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The Impact of U.S. Stock Market Volatility Spillover on Hong Kong Stocks

U.S. Stock Market Volatility Spillover Effect on Hong Kong StocksRecently, U.S. President Donald Trump's tariff policies have shown signs of expansion and escalation, significantly impacting global financial markets. Trump announced a 25% tariff on non-energy goods from Mexico and Canada, as well as EU automobiles. Additionally, he imposed an extra 10% tariff on Chinese goods. These actions have heightened concerns about a potential escalation in the global trade war, leading to sharp volatility in the U.S. stock market.In January, the U.S. Personal Consumption Expenditure (PCE) Price Index increased by 2.5% year-on-year, aligning with expectations and slightly below the previous figure of 2.6%. On a monthly basis, it rose by 0.3%. Meanwhile, the Core PCE Price Index rose by 2.6% year-on-year, in line with expectations but revised down from the previous 2.9%. Month-on-month, the core index rose by 0.3%.However, personal spending decreased by 0.2% month-on-month, and inflation-adjusted real personal consumption expenditure fell by 0.5%, marking the largest monthly decline in nearly four years. This has raised concerns about U.S. consumer spending and economic resilience.The Atlanta Federal Reserve's GDPNow model significantly lowered its forecast for Q1 2025 GDP growth from 2.3% to -1.5% as of February 28. If confirmed, this would mark the first economic contraction in the U.S. since Q1 2022.Investor concerns about the outlook for global economic growth, along with fears of an escalating trade war, have caused market turbulence. (Image/Source: Pexels)The volatility in the U.S. stock market has had a noticeable spillover effect on the Hong Kong stock market. Investor concerns about global economic growth prospects, combined with fears of an escalating trade war, have contributed to turbulence in Hong Kong stocks. Industries and companies related to trade have been particularly affected.Furthermore, capital flows have shifted, with some funds moving away from equities toward safe-haven assets such as gold and bonds.Investment Strategies and Risk ManagementTo navigate these challenges, investors should closely monitor changes in global macroeconomic conditions, especially developments in U.S. trade policies. Adjusting investment portfolios to diversify risk is crucial in response to market volatility.For businesses, effective risk management is essential, particularly for those playing key roles in the global supply chain. Companies should devise strategies to mitigate the impact of ongoing trade disputes to ensure stability and growth.

Germany's major political parties agree to relax debt limits and establish a €500 billion infrastructure fund.

Germany Eases Debt Brake and Establishes €500 Billion Infrastructure FundGermany's major political parties have recently reached a significant agreement to relax the constitutional "debt brake" rule, allowing increased defense spending and establishing a €500 billion infrastructure fund. This move aims to revitalize domestic economic growth and strengthen national defense, marking a major shift in Germany's fiscal and defense policies.Over the past two years, Germany's economy has experienced continuous contraction, prompting economists and investors to call for reforms to the "debt brake" to unlock investments and stimulate economic recovery. Meanwhile, the evolving global geopolitical landscape — particularly the freeze on U.S. military aid to Ukraine — has heightened Europe's concerns about its defense capabilities, urging Germany to accelerate its military modernization efforts.Changes in the global geopolitical landscape have heightened Europe's concerns about its defense capabilities, prompting Germany to accelerate its military modernization efforts. (Image/Source: Pexels)According to the agreement, Germany will establish a €500 billion infrastructure fund to boost infrastructure development and drive economic growth. Additionally, the constitutional "debt brake" will be amended to allow defense spending to exceed 1% of the country's GDP without restrictions. This reform aims to provide greater financial flexibility for military and infrastructure investments.The ruling coalition plans to submit the proposal to the Bundestag next week, officially initiating the legal process for the constitutional amendment and fund establishment. Adjusting the "debt brake" and creating the special fund will require a two-thirds majority vote in parliament, posing a significant coordination challenge for the ruling coalition.

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