Global Central Bank Annual Meeting: As Rate Cuts Loom, Where to Find Assets?

On August 23, the Jackson Hole Global Central Bank Annual Meeting concluded, with Federal Reserve Chairman Jerome Powell's speech taking center stage. Market expectations for rate cuts had already reached a fever pitch, and Powell's dovish remarks undoubtedly added fuel to the fire. He candidly expressed a willingness to lower rates, stating that "the time for policy adjustment has arrived."

However, Powell's speech was not without reservations. He focused on reviewing inflation trends and labor market structures since the pandemic, but was somewhat conservative in providing short-term policy guidance for the future. This raises the question of what the market should actually focus on. Once the window for rate cuts opens, which assets will become more certain?

The initiation of a rate-cutting cycle is undoubtedly a significant positive for equity markets. As policy rates decrease, the risk-free rate drops, boosting risk appetite and thereby lifting equity markets. Historical data shows that developed markets generally outperform emerging markets post-rate cuts, although emerging markets demonstrate greater resilience.

The bond market also stands to benefit. Rate cuts directly lead to lower federal funds rates and a simultaneous decline in long-term interest rates. However, it is worth noting that in the late stages of rate cuts, interest rate trends can diverge due to varying economic recovery conditions.

The performance of the U.S. dollar is more complex. During a precautionary rate-cutting cycle, the dollar index tends to strengthen. The Chinese yuan, closely following the dollar's movements, is more likely to depreciate relative to the dollar under precautionary rate cuts.

As for commodities, their performance is highly uncertain. In the early stages of rate cuts, economic slowdown and a strengthening dollar usually put pressure on commodity prices. However, as the effects of rate cuts materialize and the economy recovers, commodity prices are likely to rise.

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