Global central banks are about to usher in a new round of interest rate cuts, and global monetary policy will enter a new stage in the autumn of this year.

The market has almost fully priced in the possibility of a rate cut by the Federal Reserve in September, which means that the Fed may also join this global interest rate cut trend. A number of central banks, including the European Central Bank, the Bank of England, the People's Bank of China, the Swiss National Bank, the Swedish Central Bank, the Bank of Canada, and the Central Bank of Mexico, have already announced rate cuts and lowered their key interest rates.

At the annual Jackson Hole Symposium, Powell issued the clearest signal ever of an interest rate cut. According to CME's Fed Watch tool, current pricing indicates a high expectation 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 interest rates by 25 basis points or 50 basis points this month.

Central banks around the world are generally shifting towards loose monetary policies.

Since the beginning of this year, central banks around the world have been lowering interest rates. On June 6, as expected, the European Central Bank cut rates by 25 basis points for the first time since 2019. On August 1, the Bank of England announced a 25 basis point rate cut to 5%, the first rate cut in four years. The Swiss National Bank has also lowered its benchmark interest rate twice this year to 1.25%. The People's Bank of China unexpectedly cut interest rates by 20 basis points in July.

Currently, concerns about a possible recession in the US economy have 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, have demonstrated 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 European Central Bank, the Bank of England has raised interest rates three times this year in order to control inflation. Although service industry inflation remains a problem, it is widely expected that the Federal Reserve, the European Central Bank, and the Bank of England will continue to implement loose monetary policies in early 2025.

The Dutch cooperative bank expects the Federal Reserve to cut interest rates four times between September and January next year, and to maintain the interest rate in 2025, providing the possibility of a spring strengthening for the US dollar. Jane Foley, the bank's foreign exchange strategy director, said:

If the euro appreciates significantly against the US dollar, the market may adjust its expectations of a rate cut by the European Central Bank, as the risk of deflation may increase.

In the United States, the outcome of the US presidential election will affect Federal Reserve policy. If Trump wins, his tariff policy may trigger inflation and shorten the Fed's loose cycle.

The pace of interest rate cuts by the Bank of England may be limited by service industry inflation, slowing down to once per quarter.

Interest rate cuts inevitably lead to short-term fluctuations in the US stock market, but still have investment value.

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

Both European and US stock markets have shown a strong rebound in 2024, with the European Stoxx 600 index up nearly 10% year to date, and hitting an intraday record high on Friday, while the S&P 500 index has risen by 19% year to date.

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

Looking at price momentum, valuation, and market sentiment, the market has already recovered. We are entering the seasonally weak months of September and October. Therefore, I expect the market to be driven by various factors, including geopolitics, corporate earnings, and AI leaders.

However, Wittmann also pointed out that short-term volatility is still inevitable. This volatility may stem from "overdue consolidation corrections" and sector rotations. But he believes that stocks will still be a worthwhile asset class to invest in for the remainder of this year and the next 25 years.

Manpreet Gill, Chief Investment Officer of Standard Chartered Bank, also believes that there is still a high possibility of a soft landing for the US economy. He emphasized that as long as an economic downturn can be avoided, the US stock market still has great upward potential. In addition, he believes that market expectations of interest rate cuts are an important factor supporting the stock market.

Arnaud Girod, Head of Economic and Cross-Asset Strategy at Kepler Cheuvreux, said that despite the current performance of the bond market and stock market, investors still face significant uncertainty about the future economic situation. While interest rate cuts may help boost the market, they may also bring potential risks.

If interest rate cuts occur too frequently, they could lead to negative economic data and undermine corporate profitability. Therefore, it is not advisable to be overly optimistic about the future economic situation.

The stock market seems to be insensitive to interest rate changes, and even large technology companies have achieved growth when interest rates have peaked. This contradicts traditional views.

Editor/Rocky