Global central banks are about to usher in a new round of interest rate cuts, and global monetary policy is expected to enter a new phase this autumn.

The market has almost completely priced in the possibility of a September rate cut by the Fed, which means the Fed may also join this global trend of interest rate cuts. Previously, central banks such as the European Central Bank, Bank of England, People's Bank of China, Swiss National Bank, Swedish National Bank, Bank of Canada, and Bank of Mexico have announced rate cuts, collectively reducing key interest rates.

At the annual Jackson Hole Symposium, Powell delivered the most explicit interest rate cut signal ever. According to CME's Fed Watch Tool, the current pricing indicates high expectations for three 25-basis-point rate cuts by the Fed before the end of the year.

Investors are closely watching the US employment data released on September 6, which will provide key information on whether the Fed will cut rates by 25 basis points or 50 basis points this month.

Global central banks are generally shifting towards accommodative monetary policies.

Since the beginning of this year, central banks around the world have been lowering interest rates one after another. On June 6, as expected, the European Central Bank cut rates by 25 basis points unanimously, the first time since 2019; on August 1, the Bank of England announced a rate cut of 25 basis points to 0.5%, the first rate cut in four years; the Swiss National Bank has also lowered benchmark interest rates twice this year to 1.25%; the People's Bank of China unexpectedly cut rates by 20 basis points in July.

Currently, concerns about a possible recession in the US economy have somewhat eased. Germany, as a traditional manufacturing powerhouse, has shown relatively weak economic performance, while countries like the United Kingdom, which focus more on the service sector, are demonstrating steady growth.

The European Central Bank has already lowered interest rates three times this year, each time by 25 basis points. In contrast to the ECB, the Bank of England has raised interest rates three times this year in order to control inflation. Despite concerns about inflation in the service sector, it is widely expected that the Federal Reserve, the ECB, and the Bank of England will continue to implement loose monetary policies in early 2025.

Rabobank expects the Federal Reserve to cut interest rates four times between September and January next year and maintain rates unchanged in 2025, which provides the possibility for the US dollar to strengthen in the spring. Jane Foley, Head of FX Strategy at the bank, said:

If the euro appreciates significantly against the dollar, there may be adjustments in market expectations for a rate cut by the ECB, as the risk of deflation may increase.

In the United States, the outcome of the presidential election will influence the Federal Reserve's policies. If Trump wins, his tariff policies could lead to inflation and shorten the Fed's loose cycle.

The pace of interest rate cuts by the Bank of England may be limited by inflation in the service sector, and the rate cut speed may slow to once per quarter.

Acutely, interest rate cuts are inevitable for short-term volatility in the US stock market, but they still have investment value.

Generally speaking, interest rate cuts have a bullish impact on assets, but the specific extent and direction of the impact will vary depending on the type of asset and the market environment.

Both European and American stock markets have shown strong rebound in 2024. The Euro Stoxx 600 index has risen nearly 10% year-to-date, hitting a new intraday high on Friday, and the S&P 500 index has risen 19% so far.

$CBOE Volatility S&P 500 Index (.VIX.US)$

From the perspective of price momentum, valuation, and market sentiment, the market has basically recovered. We are entering the seasonally weaker months of September and October. Therefore, I expect the market to be driven by various factors, including geopolitics, corporate profits, and AI leadership.

However, Wittmann also pointed out that short-term volatility is still inevitable. This volatility may stem from 'overdue consolidation adjustments' and rotation between industries. But he believes that stocks will continue to be a worthwhile investment asset class for the remaining year and beyond 25 years.

Manpreet Gill, Chief Investment Officer of Standard Chartered Bank, also believes that the possibility of a soft landing for the U.S. economy remains high. He emphasized that as long as the economy avoids a downturn, the U.S. stock market still has great potential for growth. In addition, he believes that the market's expectation of rate cuts is an important factor supporting the stock market.

Arnaud Girod, Chief Economist and Cross-Asset Strategy Director of Kepler Cheuvreux, stated that although the bond and stock markets are performing well at present, investors still face significant uncertainty about the future economic situation. While rate cuts may help boost the market, they may also bring potential risks.

If there are too many rate cuts, it may lead to negative economic data, thereby weakening corporate profitability. Therefore, it is not advisable to be overly optimistic about the future economic situation.

The stock market seems insensitive to changes in interest rates, and even achieved gains when interest rates peaked, defying traditional views.

Editor/Rocky