In recent days, with a significant drop in US June inflation data and a shift in Fed Chairman Powell's stance, the betting on interest rate cuts has increased significantly. At the same time, with the prospect of Trump's return to the White House gradually deepening after the assassination attempt, the market has begun to play both the "interest rate trade" and the "Trump trade".

Federal Reserve Chairman Powell said on Monday that recent data "to some extent" has boosted the Fed's confidence that inflation is falling to its target level. Goldman Sachs chief economist Jan Hatzius has even begun to call for an interest rate cut by the Fed at the end of this month. Under this series of news, the market for the first time priced the Fed's interest rate cut in September at 100% probability.

As of July 14th, Predictlt data shows that Trump's win rate has reached 67% and Biden's win rate is 27%; as of July 13th, The Hill data shows that the Republicans in the US House and Senate have a leading probability of winning, at 78% and 60% respectively.

So, which assets will benefit from the resonance and friction between the "interest rate trade" and the "Trump trade"? According to statistics from Futu News, since the CPI data was released last Thursday, various types of varieties have performed differently. Among them, bitcoin rose 14% vigorously, small-cap stocks performed well, and both gold and Dow Jones hit new highs.

"Interest rate trade" VS "Trump trade", which direction is the consensus?

• Bitcoin

After Trump's weekend assassination attempt, his support rate rose sharply, and bitcoin, which trades 24/7, was the first to react. Wall Street professionals analyzed that due to Trump's supportive attitude towards cryptocurrencies, the rise in Trump's election support rate favored risky assets such as bitcoin, which is also known as the "Trump trade" among traders.

On Monday, the Republican Party stated in its new party manifesto that Republicans will end the Democratic Party's crackdown on cryptocurrencies and ensure that Americans have the right to self-manage their digital assets. This means that if Trump comes to power, the US position on cryptocurrencies will undergo significant changes. In addition, Trump's new deputy Pence recently revealed his holdings, showing that he holds a large position in Bitcoin ETF ($Fidelity Wise Origin Bitcoin Fund (FBTC.US)$), which also shows the Republican Party's attitude towards Bitcoin.

At the same time, the interest rate cut cycle itself is also bullish for the cryptocurrency circle. Looking back at the last round of interest rate cuts (August 2019-March 2022), Bitcoin performed the best, rising nearly three times during the entire interest rate cut cycle.

• E-mini Russell 2000 Index

The reasons for the outbreak of the E-mini Russell 2000 Index this time are twofold. On the one hand, compared with large-cap and technology giants, small-cap stocks have a larger room for valuation repair after two years of silence. On the other hand, there are also dual effects of the expected interest rate cut and the "Trump trade".

First of all, the financial, biotechnology and other interest-sensitive industries account for more than 15% of the Russell 2000 Index. These sectors had lagged behind the broad market before, but they have recently caught up. $Spdr Series Trust S&P Regional Bkg Etf (KRE.US)$It rose more than 12% in the past four trading days and nearly 10% this month. $SPDR S&P Biotech ETF (XBI.US)$In addition, the rotation of US stock sectors may be quietly beginning. According to a strategist at French industrial bank, "the US election will trigger frequent rotation trades, because Trump 2.0's potential policies are bullish for breadth trading. We now believe that improving breadth should be the development direction of the S&P 500 Index."

According to data from S3 Partners, about 25% of the short interest in the $68 billion futures index is concentrated in the Russell 2000 Index, compared with less than 10% in other major indexes, and short covering has also sparked a strong rebound in the Russell 2000 Index.

Compared with this, the performance of the large-cap stock index and the Magnificent Seven of the US stock market, which have led the rise of the US stock market in the past two years, has been mediocre. In the past four trading days, the S&P 500 Index has risen by only about 0.59%, while the Nasdaq has fallen slightly, and the tracking the "Mag 7" has fallen by nearly 4%. $iShares Russell 2000 ETF (IWM.US)$Short interest in the futures index of nearly $68 billion is concentrated in the Russell 2000 Index. Compared with other major indexes, it is less than 10%. Short covering has sparked a strong rebound in the Russell 2000 Index.

Compared with this, the performance of the large-cap stock index and the Magnificent Seven of the US stock market, which have led the rise of the US stock market in the past two years, has been mediocre. In the past four trading days, the S&P 500 Index has risen by only about 0.59%, while the Nasdaq has fallen slightly, and the tracking the "Mag 7" has fallen by nearly 4%. $Roundhill Magnificent Seven ETF (MAGS.US)$ETF

• Gold

Spot gold hit a new high for two consecutive days, breaking through the $2,480 / ounce mark. The expectation of interest rate cuts accompanied by the weakening of the US dollar has significantly increased the attractiveness of gold as a safe-haven asset. In addition, the attempted assassination of Trump has increased political uncertainty, further boosting the demand for metals as a hedge.

With the increase in uncertainties such as the US presidential election in the second half of the year, the demand for gold may still be on the rise. According to a recent survey by the World Gold Council (WGC), about 30% of central banks plan to increase their gold reserves in the next 12 months. Bank of America boldly predicts that gold prices will reach $2,750 / ounce by 2025 and may rise to $3,000 / ounce in 12 to 18 months.

• The Dow Jones Industrial Average

After the attack on Trump on the 13th, the Dow quickly broke the new high at the opening on the 15th and rose nearly 2% on the 16th, approaching 41,000 points to continue to refresh the new high. It is the best performing index among the three major indexes.

"In predicting Trump's policy management, investors are paying attention to the performance of the Trump administration from 2017 to 2021 as a reliable guide," explained Jonas Goltermann, Deputy Chief Economist at Capital Economics.

During Trump's tenure, finance, industry, traditional energy, and some medical care companies performed well, and most of the components of the Dow belong to these industries. The expectation of relaxation of regulations on these industries has pushed up the trend of the entire Dow.

Editor/new