Overseas Research and Selection Daily 0724: Goldman Sachs: The Bank of Japan is expected to remain on hold in July and the next interest rate hike may be in January 2027
Macro Western Assets: Heightening uncertainty about the U.S. midterm elections, "divided government" or reshaping market logic Western Asset Management pointed out that although there are still several months until the U.S. midterm elections in November, political risks are becoming a market variable again. The Republican Party still controls the Senate, but the current effective voting advantage has temporarily narrowed to about 51 to 47. Factors such as defections within the party and the absence of members may increase the difficulty of judicial appointments, procedural voting and the advancement of the government agenda, and weaken the White House's legislative flexibility.
Western Assets: Uncertainty about the U.S. midterm elections is heating up, and “split government” may reshape market logic Western Asset Management pointed out that although the U.S. midterm elections in November are still months away, political risks are once again becoming a market variable. The Republican Party still controls the Senate, but the current effective voting advantage has temporarily narrowed to about 51 to 47. Factors such as defections within the party and the absence of members may increase the difficulty of judicial appointments, procedural voting and the advancement of the government agenda, and weaken the White House's legislative flexibility. The electoral landscape is also more competitive than at the beginning of the year. The Democratic Party needs a net gain of 4 seats to seize control of the Senate; 58 members of the House of Representatives have announced that they will not run for re-election, including 36 Republicans, accounting for 62%. The large number of open seats weakens Republicans' incumbent advantage and increases the likelihood that the House will change hands. At the same time, tariffs, persistent inflation and the U.S.-Iran conflict are weighing on the economic outlook. Multiple surveys show that Trump's overall approval rating has dropped to 33% to 37%, his economic policy approval rating is about 33%, and only about one-third of the respondents approve of his handling of the Iran issue. The report believes that investors should focus on evaluating the divided government scenario in which "the Democrats control the House of Representatives and the Republicans retain the Senate." The outcome would make major legislative and budget negotiations more difficult while making trade, tariffs, sanctions and foreign policy more reliant on presidential executive power. This may change the policy support logic of some assets. Digital assets have benefited from the improvement of the regulatory environment, financial stocks have benefited from loosening regulations and expectations of lower capital requirements, and small domestic demand stocks have been supported by themes such as tax cuts and the reshoring of manufacturing. Splitting the government may not necessarily be bad for the market, but taxation, fiscal stimulus and domestic legislation require the cooperation of Congress, and the repricing of relevant policy expectations may become an important driver of future industry and asset performance. Goldman Sachs: The Bank of Japan is expected to stay on hold in July and the next rate hike may be in January 2027 Goldman Sachs expects the Bank of Japan to maintain policy unchanged at its July monetary policy meeting and continue to release signals of gradual tightening of monetary policy. The Japanese economy is recovering moderately as a whole, with corporate prosperity remaining good and capital expenditures positive. Although underlying inflation has weakened, corporate commodity prices are still rising, and cost pressures are expected to be further transmitted to the consumer side starting in the summer. With crude oil prices significantly lower than when the April outlook report was released, Goldman Sachs expects the Bank of Japan to slightly raise its economic growth forecast and lower its inflation forecast. Among them, the actual GDP growth forecast from fiscal year 2026 to 2028 may be adjusted to 0.7%, 0.8% and 0.8% respectively; the core CPI forecast excluding fresh food may be reduced to 2.6%, 2.2% and 2.0% respectively. The Bank of Japan is still expected to judge that underlying inflation will reach 2% in the second half of fiscal 2026 to fiscal 2027. This year's "spring battle" basic wage increase once again reached the mid-3% range, and corporate profits remain high, providing a buffer for the economy to resist rising energy prices. Goldman Sachs expects the Bank of Japan to view economic risks as broadly balanced, but inflation risks to the upside, and reiterated the risk that underlying inflation could breach its 2% target. Given that the Bank of Japan just raised interest rates in June, it still needs to assess its impact on the economy, prices and financial environment. Goldman Sachs maintains its judgment that interest rates will be raised approximately every six months. The next rate increase is expected to be in January 2027, and may be followed by another move in July. However, market fluctuations, progress in communication between the central bank and the government, and the trend of the yen may change the timing; if the yen further depreciates, the next interest rate hike may be brought forward to October this year. Rabobank: The European Central Bank is expected to raise interest rates by 25 basis points in September. The situation in the Middle East may force it to continue tightening Rabobank said that the European Central Bank kept the deposit mechanism interest rate at 2.25% in July, but President Lagarde released a signal to raise interest rates in September. The bank predicts that the European Central Bank will raise the deposit rate and the main refinancing rate to 2.50% and 2.65% respectively in September, and use 2.50% as the end point of this round of interest rate hikes.
The ECB believes that the energy shock in the Middle East is sufficient to support gradual tightening, but is not severe or long-lasting enough to require immediate and continuous interest rate hikes. Although energy prices have risen again recently, they are still close to June staff forecasts, and the inflation outlook has not worsened significantly. Energy costs have had an indirect impact through transportation services and other channels, providing the basis for another interest rate hike in September; however, there is currently no clear second-round effect, wage tracking indicators continue to show a slowdown in wage growth, and corporate surveys have not found rising wage pressures. Lagarde emphasized that medium-term inflation expectations remain under control, but the report pointed out that consumer expectations for inflation three years later rose to about 3% after the outbreak of the Iran war and have remained high since then. The European Central Bank unanimously decided to stay on hold "for the time being" and said it would closely monitor the intensity and duration of the energy shock, indicating that this action is more like a pause than the end of interest rate hikes. The current economic scenario is still close to the June baseline forecast, which already takes into account two interest rate hikes, and the mild scenario is considered less likely. Rabobank warned that if the conflict in the Middle East expands from the Strait of Hormuz to the Red Sea and pushes up inflation expectations and wage pricing, the European Central Bank may be forced to raise interest rates above 2.50%. But the greater the tightening, the stronger the hit to economic growth, and the probability that the European Central Bank will reverse some of its interest rate hikes in 2027 will increase. Goldman Sachs: AI risks need to be distinguished between "cake size" and "benefit distribution". The two types of impacts have very different market impacts. Goldman Sachs’ latest research report pointed out that as the valuation of AI-related stocks continues to rise, the market needs more optimistic economic return assumptions to justify current pricing. Strong earnings may continue to outweigh valuation concerns in the short term, but AI transactions have become more vulnerable to capital returns, technological competition and changes in the macro environment. Goldman Sachs believes that the key to analyzing AI risks is to distinguish whether the impact changes the overall value created by AI, that is, the "size of the cake," or changes the distribution of value among different companies, that is, "how the cake is divided." The overall value depends primarily on productivity gains, the speed of adoption, the share of capital gains earned by companies, the ability of U.S. companies to capture overseas earnings, and the discount rate. Under the baseline scenario, the present value of future AI revenue for U.S. companies is about $9 trillion; under different assumptions, this figure can be as low as $5 trillion or rise to $22 trillion. Slowing adoption, insufficient application scenarios, tightening financing environment and deteriorating macroeconomics are usually aggregate shocks, which will simultaneously lower the valuations of AI companies and the broader market, and push up credit spreads and index volatility. Unless rising interest rates are themselves a source of risk, such concerns typically push Treasury yields lower. In contrast, chip price cuts, model competition, cloud manufacturers cutting capital expenditures, or AI disrupting traditional industries may just redistribute benefits among hyperscale cloud computing companies, semiconductor manufacturers, enterprise users, and consumers, with a smaller net impact on stock indexes and macro assets. Goldman Sachs said that investors with broad U.S. stock exposures can use stock indexes and interest rate assets to hedge aggregate risks; however, investors who hold specific AI sectors have a harder time preventing interest redistribution because macro assets such as exchange rates and commodities have an unstable relationship with such shocks. Goldman Sachs: U.S. IPO financing this year may hit a record of $225 billion, but it has not yet constituted a peak signal Goldman Sachs' latest "Top of Mind" report pointed out that the U.S. IPO market has quickly restarted after several years of silence. So far in 2026, it has raised approximately US$125 billion, which has exceeded the full-year record of approximately US$120 billion in 2021, and is expected to reach US$225 billion for the whole year. However, the number of transactions during the year was only about 53 to 60, close to the long-term annual median of about 100 transactions, and well below the more than 250 transactions in 2021 and the nearly 400 transactions in 1999. Therefore, this rebound is more like a normalization amplified by a few large technology and AI projects, rather than a full-scale "IPO wave."
Ben Snider, chief U.S. equity strategist at Goldman Sachs, believes that the traditional end-of-cycle alarm has not yet occurred. The median enterprise value to sales ratio of recent IPOs is about 5 times, which is only slightly higher than the 30-year median of 4 times and significantly lower than the 9 times in 1999 and the 7 times in 2021. Goldman Sachs estimates that U.S. companies will issue about US$700 billion in various types of equity this year, equivalent to only 1% of the market value of the Russell 3000 Index; corporate buybacks are expected to reach US$1.3 trillion, enough to cover new supply. However, after the centralized lifting of restrictions on sales in 2027, supply and demand pressure will increase. Jay Ritter of the University of Florida pointed out that although high issuance is related to lower market returns in the future, the prediction success rate is only about 52% and cannot be regarded as a signal of a market peak alone. U.S. listed companies return approximately US$1.6 trillion to investors every year through dividends and buybacks, and also provide sufficient funds to absorb new shares. Owen Lamont of Acadian is more cautious, believing that the issuance wave is one of the "four horsemen" of the bubble. If it occurs at the same time as the wave of AI capital expenditures and debt financing, it will constitute a negative signal for the stock market and credit market; but it may mark the beginning of the bubble, not the top. At present, the IPO's first-day increase has not yet reached the extreme level of 100% that was common in 1999, and the speculative mania is still not obvious. Investors should focus on first-day returns, lifting of restricted shares, AI prospects and bond market saturation; given that IPOs usually underperform the market in the three years after listing, they should be cautious in chasing individual new stocks. Natixis: Hormuz navigation volume plummets by 70% Middle East conflict pushes up oil prices and credit risks The latest Middle East market tracking report released by Natixis shows that the conflict between the United States and Iran has escalated again, and ceasefire negotiations continue to lag behind the progress of the war. From July 17th to 18th, the United States expanded its attacks on Iranian bridges, power facilities, and military infrastructure, while Iran attacked US military bases and regional facilities; from July 20th to 21st, another oil tanker was attacked in the Strait of Hormuz. Although Pakistan and Türkiye continue to mediate, a new round of negotiations has not yet been confirmed. Shipping risks are rising rapidly. The number of ships passing through the Strait of Hormuz in a single day dropped from 22 on July 8 to 6 on the 20th, a drop of more than 70%. At the same time, the Houthi armed forces claimed to have attacked two Saudi oil tankers, one of which has been confirmed to have been attacked, putting the Red Sea route that could have been used as an alternative channel at risk. Regional energy and trade transportation lacked safe bypass options. Tightening supply has pushed oil prices to continue to rise, with Brent crude oil futures rising from US$88 per barrel on July 17 to US$97.5 on the 23rd, a week-long increase of nearly 11%. Credit risks in the Gulf countries have increased simultaneously, and five-year credit default swaps have generally widened, with Bahrain and Dubai experiencing the most significant increases, reflecting that attacks on U.S.-related facilities and commercial shipping are pushing up regional risk premiums. Capital market performance has become divergent. Dubai and Oman stocks weakened due to higher exposure to trade and shipping, while Kuwait performed relatively solidly with a high proportion of banking stocks. In the week ending July 19, the Dubai and Saudi stock markets together recorded a net outflow of US$22 million in foreign capital. Natixis believes that oil prices, Gulf credit spreads and regional assets will remain under pressure amid the lack of ceasefire progress, limited navigation to Hormuz and rising risks in the Red Sea route. Goldman Sachs: Alphabet’s cloud business grew at 82% and the AI capital expenditure cycle continues to rise Goldman Sachs said in its latest research report that Alphabet's second-quarter performance was overall strong, and its search, YouTube and cloud businesses all showed good growth momentum, indicating that the company is accelerating the construction of AI infrastructure and expanding AI commercialization through consumer and enterprise products. The bank maintained a "buy" rating on Alphabet but slightly lowered its 12-month target price to $435 from $440.
Google Cloud revenue surged 81.8% year-on-year to US$24.768 billion, 10.1% higher than market expectations; operating profit reached US$8.814 billion, and operating profit margin rose to 35.6%. The backlog of cloud business orders increased by approximately US$50 billion month-on-month to US$514 billion. Enterprise AI demand is strong. Nearly 90% of Fortune 100 companies have used Gemini Enterprise, and the number of new customers has doubled year-on-year. Accordingly, Goldman Sachs raised its Google Cloud revenue forecast to US$108.8 billion and US$187.5 billion in 2026 and 2027 respectively. However, Alphabet raised its capital expenditure guidance for 2026 from US$180 billion to US$190 billion to US$195 billion to US$205 billion, and expected capital expenditures to increase significantly in 2027. Goldman Sachs expects capital expenditures in the two years to be approximately US$205 billion and US$350 billion respectively. Investors will continue to focus on peak capital expenditures, Gemini's competitiveness, and the pressure on cloud business profit margins from depreciation and third-party computing power procurement.
The ECB believes that the energy shock in the Middle East is sufficient to support gradual tightening, but is not severe or long-lasting enough to require immediate and continuous interest rate hikes. Although energy prices have risen again recently, they are still close to June staff forecasts, and the inflation outlook has not worsened significantly. Energy costs have had an indirect impact through transportation services and other channels, providing the basis for another interest rate hike in September; however, there is currently no clear second-round effect, wage tracking indicators continue to show a slowdown in wage growth, and corporate surveys have not found rising wage pressures. Lagarde emphasized that medium-term inflation expectations remain under control, but the report pointed out that consumer expectations for inflation three years later rose to about 3% after the outbreak of the Iran war and have remained high since then. The European Central Bank unanimously decided to stay on hold "for the time being" and said it would closely monitor the intensity and duration of the energy shock, indicating that this action is more like a pause than the end of interest rate hikes. The current economic scenario is still close to the June baseline forecast, which already takes into account two interest rate hikes, and the mild scenario is considered less likely. Rabobank warned that if the conflict in the Middle East expands from the Strait of Hormuz to the Red Sea and pushes up inflation expectations and wage pricing, the European Central Bank may be forced to raise interest rates above 2.50%. But the greater the tightening, the stronger the hit to economic growth, and the probability that the European Central Bank will reverse some of its interest rate hikes in 2027 will increase. Goldman Sachs: AI risks need to be distinguished between "cake size" and "benefit distribution". The two types of impacts have very different market impacts. Goldman Sachs’ latest research report pointed out that as the valuation of AI-related stocks continues to rise, the market needs more optimistic economic return assumptions to justify current pricing. Strong earnings may continue to outweigh valuation concerns in the short term, but AI transactions have become more vulnerable to capital returns, technological competition and changes in the macro environment. Goldman Sachs believes that the key to analyzing AI risks is to distinguish whether the impact changes the overall value created by AI, that is, the "size of the cake," or changes the distribution of value among different companies, that is, "how the cake is divided." The overall value depends primarily on productivity gains, the speed of adoption, the share of capital gains earned by companies, the ability of U.S. companies to capture overseas earnings, and the discount rate. Under the baseline scenario, the present value of future AI revenue for U.S. companies is about $9 trillion; under different assumptions, this figure can be as low as $5 trillion or rise to $22 trillion. Slowing adoption, insufficient application scenarios, tightening financing environment and deteriorating macroeconomics are usually aggregate shocks, which will simultaneously lower the valuations of AI companies and the broader market, and push up credit spreads and index volatility. Unless rising interest rates are themselves a source of risk, such concerns typically push Treasury yields lower. In contrast, chip price cuts, model competition, cloud manufacturers cutting capital expenditures, or AI disrupting traditional industries may just redistribute benefits among hyperscale cloud computing companies, semiconductor manufacturers, enterprise users, and consumers, with a smaller net impact on stock indexes and macro assets. Goldman Sachs said that investors with broad U.S. stock exposures can use stock indexes and interest rate assets to hedge aggregate risks; however, investors who hold specific AI sectors have a harder time preventing interest redistribution because macro assets such as exchange rates and commodities have an unstable relationship with such shocks. Goldman Sachs: U.S. IPO financing this year may hit a record of $225 billion, but it has not yet constituted a peak signal Goldman Sachs' latest "Top of Mind" report pointed out that the U.S. IPO market has quickly restarted after several years of silence. So far in 2026, it has raised approximately US$125 billion, which has exceeded the full-year record of approximately US$120 billion in 2021, and is expected to reach US$225 billion for the whole year. However, the number of transactions during the year was only about 53 to 60, close to the long-term annual median of about 100 transactions, and well below the more than 250 transactions in 2021 and the nearly 400 transactions in 1999. Therefore, this rebound is more like a normalization amplified by a few large technology and AI projects, rather than a full-scale "IPO wave."
Ben Snider, chief U.S. equity strategist at Goldman Sachs, believes that the traditional end-of-cycle alarm has not yet occurred. The median enterprise value to sales ratio of recent IPOs is about 5 times, which is only slightly higher than the 30-year median of 4 times and significantly lower than the 9 times in 1999 and the 7 times in 2021. Goldman Sachs estimates that U.S. companies will issue about US$700 billion in various types of equity this year, equivalent to only 1% of the market value of the Russell 3000 Index; corporate buybacks are expected to reach US$1.3 trillion, enough to cover new supply. However, after the centralized lifting of restrictions on sales in 2027, supply and demand pressure will increase. Jay Ritter of the University of Florida pointed out that although high issuance is related to lower market returns in the future, the prediction success rate is only about 52% and cannot be regarded as a signal of a market peak alone. U.S. listed companies return approximately US$1.6 trillion to investors every year through dividends and buybacks, and also provide sufficient funds to absorb new shares. Owen Lamont of Acadian is more cautious, believing that the issuance wave is one of the "four horsemen" of the bubble. If it occurs at the same time as the wave of AI capital expenditures and debt financing, it will constitute a negative signal for the stock market and credit market; but it may mark the beginning of the bubble, not the top. At present, the IPO's first-day increase has not yet reached the extreme level of 100% that was common in 1999, and the speculative mania is still not obvious. Investors should focus on first-day returns, lifting of restricted shares, AI prospects and bond market saturation; given that IPOs usually underperform the market in the three years after listing, they should be cautious in chasing individual new stocks. Natixis: Hormuz navigation volume plummets by 70% Middle East conflict pushes up oil prices and credit risks The latest Middle East market tracking report released by Natixis shows that the conflict between the United States and Iran has escalated again, and ceasefire negotiations continue to lag behind the progress of the war. From July 17th to 18th, the United States expanded its attacks on Iranian bridges, power facilities, and military infrastructure, while Iran attacked US military bases and regional facilities; from July 20th to 21st, another oil tanker was attacked in the Strait of Hormuz. Although Pakistan and Türkiye continue to mediate, a new round of negotiations has not yet been confirmed. Shipping risks are rising rapidly. The number of ships passing through the Strait of Hormuz in a single day dropped from 22 on July 8 to 6 on the 20th, a drop of more than 70%. At the same time, the Houthi armed forces claimed to have attacked two Saudi oil tankers, one of which has been confirmed to have been attacked, putting the Red Sea route that could have been used as an alternative channel at risk. Regional energy and trade transportation lacked safe bypass options. Tightening supply has pushed oil prices to continue to rise, with Brent crude oil futures rising from US$88 per barrel on July 17 to US$97.5 on the 23rd, a week-long increase of nearly 11%. Credit risks in the Gulf countries have increased simultaneously, and five-year credit default swaps have generally widened, with Bahrain and Dubai experiencing the most significant increases, reflecting that attacks on U.S.-related facilities and commercial shipping are pushing up regional risk premiums. Capital market performance has become divergent. Dubai and Oman stocks weakened due to higher exposure to trade and shipping, while Kuwait performed relatively solidly with a high proportion of banking stocks. In the week ending July 19, the Dubai and Saudi stock markets together recorded a net outflow of US$22 million in foreign capital. Natixis believes that oil prices, Gulf credit spreads and regional assets will remain under pressure amid the lack of ceasefire progress, limited navigation to Hormuz and rising risks in the Red Sea route. Goldman Sachs: Alphabet’s cloud business grew at 82% and the AI capital expenditure cycle continues to rise Goldman Sachs said in its latest research report that Alphabet's second-quarter performance was overall strong, and its search, YouTube and cloud businesses all showed good growth momentum, indicating that the company is accelerating the construction of AI infrastructure and expanding AI commercialization through consumer and enterprise products. The bank maintained a "buy" rating on Alphabet but slightly lowered its 12-month target price to $435 from $440.
Google Cloud revenue surged 81.8% year-on-year to US$24.768 billion, 10.1% higher than market expectations; operating profit reached US$8.814 billion, and operating profit margin rose to 35.6%. The backlog of cloud business orders increased by approximately US$50 billion month-on-month to US$514 billion. Enterprise AI demand is strong. Nearly 90% of Fortune 100 companies have used Gemini Enterprise, and the number of new customers has doubled year-on-year. Accordingly, Goldman Sachs raised its Google Cloud revenue forecast to US$108.8 billion and US$187.5 billion in 2026 and 2027 respectively. However, Alphabet raised its capital expenditure guidance for 2026 from US$180 billion to US$190 billion to US$195 billion to US$205 billion, and expected capital expenditures to increase significantly in 2027. Goldman Sachs expects capital expenditures in the two years to be approximately US$205 billion and US$350 billion respectively. Investors will continue to focus on peak capital expenditures, Gemini's competitiveness, and the pressure on cloud business profit margins from depreciation and third-party computing power procurement.