The Zhitong Finance App learned that Guotai Junan International released a research report indicating that another sharp adjustment in US stocks, combined with the continuous weakening of employment data, made more investors begin to bet on cutting interest rates by 50 basis points in September. In fact, there are actually two types of people in the market who bet on cutting interest rates by 25 basis points and cutting interest rates by 50 basis points. Those who think it is possible to cut interest rates by 50 basis points are probably direct participants in the stock market. They are worried that monetary policy “does not meet the standards” and will cause the stock market to fall even more severely; those who think that the interest rate cut is 25 basis points are more concerned about the shift in US monetary policy. Currently, the market expects the Fed to cut interest rates by more than 110 basis points this year. In other words, the market believes that the next three meetings will cut interest rates by 50 basis points twice.

Guotai Junan International's main views are as follows:

Another sharp adjustment in US stocks, combined with the continuous weakening of employment data, caused more investors to start betting on a 50 basis point cut in interest rates in September. Before the interest rate was discussed on September 18, the US had only CPI, which is a relatively important economic data. Even if the CPI data is significantly lower than expected, there is still uncertainty about whether the Fed will actually choose to cut interest rates by 50 basis points.

Last week, the US released continuous ADP and non-farm payrolls data. As a result, both figures fell short of market expectations. The ADP employment data was even more complete, below the forecasts of all surveyed economic analysts; although the non-farm payrolls data was also relatively weak, the unemployment rate performance was normal, and overall it could be said that it was “average.” After the release of the non-farm payrolls data, Federal Reserve influencer voting committee Waller supported interest rate cuts and said that if appropriate, he would promote “proactive” interest rate cuts and was open to the intensity and speed of interest rate cuts. Waller believes that “there are some downside risks to employment,” and he will “keep a close eye on it.” At the same time, he also pointed out that the US job market continues to weaken, but it has not deteriorated. The US economy has neither fallen into recession, nor is it expected to go into recession.

Relative pessimists about the US economy have paid attention to Waller's statement on “forward interest rate cuts,” but if they are optimistic about the economy, they will see that Waller doesn't think the US economy has fallen into a “recession,” and the latest GDPNow data released last night also shows that the US economy's latest forecast for the third quarter is 2.5% (month-on-month, discounted rate). This figure also makes it difficult for the market to believe that the US economy is at serious risk of recession. Therefore, the more rational interpretation is that the Federal Reserve still needs more data to evaluate the economy. Although the state of the job market has cooled down, the answer to whether it indicates that the Fed needs to take immediate aggressive action may still be vague.

In fact, there are actually two types of people in the market who bet on cutting interest rates by 25 basis points and cutting interest rates by 50 basis points. Those who think it is possible to cut interest rates by 50 basis points are probably direct participants in the stock market. They are worried that the monetary policy “does not meet the standards” and will cause the stock market to fall even more severely; those who think that the interest rate cut is 25 basis points are more concerned about the shift in US monetary policy.

At the end of the day, we still have to wait for the Federal Reserve's interest rate meeting on September 18, and no matter how much interest rate cuts are, investors will rejoice as long as the stock market rises — at that time, the rate cut will not matter. If the stock market falls, then whether it is 25 or 50, it is likely that they will have to fight a bit. As a bold assumption, if US stocks don't experience an epic decline in the next 10 days — like during the COVID-19 pandemic, for example — then the Federal Reserve will still choose 25 over 50. Because to this day, the NASDAQ still increased by more than 10% during the year. Meanwhile, the Dow Jones Industrial Index has been performing steadily; in other words, the market game is still focused on the technology sector.

At this time, I have to discuss the seasonality of US stocks. Judging from past experience, US stocks are likely to decline quite a bit in September, and the reason for this seems difficult to determine. However, past experience also shows that September is often a time when the US dollar index performs well, but so far, the performance of the US dollar index is still inexhaustible. From this perspective, the market needs to clarify whether the “seasonality” of US stocks and the US dollar index will return this year. When it comes to “seasonality,” I personally always respect it because things that are repeated over and over again, although they may seem nonsensical, are probably the most hopeful and exciting.

Speaking of this, I actually believe that when the Federal Reserve turned this month, 25 instead of 50 was the more common option; I believe this is also more in line with the laws of history. For policy makers, it may be more important to release a “turnaround” signal. Historical experience also shows that when the Federal Reserve shifts, a relatively “conservative” 25 basis points is more likely to receive support from more people.

Cathay Pacific Junan International adjusted its interest rate cut forecast for this year over the weekend, from the previous 50 basis points to 75 basis points. In other words, in the next three interest rate meetings, the Federal Reserve will cut interest rates by 25 basis points. Currently, the market expects the Fed to cut interest rates by more than 110 basis points this year. In other words, the market believes that the next three meetings will cut interest rates by 50 basis points twice. This means that in the end, only one side of the market and the analysts is right.