Federal Reserve Rate Cut Outlook: Market expectations for the Federal Reserve to commence a rate-cutting cycle in September have significantly increased. Despite the Federal Reserve’s policy of maintaining interest rates steady to assess the impact of Trump’s tariffs and other policies on inflation and the labor market, the consensus on the US economy’s weakness has solidified. Thus, anticipating at least two rate cuts within the year appears reasonable. However, the risk remains that Trump’s tariff policy could substantially boost inflation, complicating the Federal Reserve’s decision-making.
Commodity Market
Gold: This week, gold prices rose due to increased demand for safe-haven assets amid geopolitical tensions and mixed US economic data. In the medium to long term, factors such as the expanding US fiscal deficit, tariff policies, central banks’ gold purchases, and geopolitical conflicts will continue to support gold prices.
Crude Oil: Prices fluctuated upward this week due to supply disruption concerns from the Russia-Ukraine conflict and US-Iran nuclear talks. Despite OPEC+ production increases, actual output was insufficient, and wildfires in Canada further supported prices. Medium to long-term oil prices face pressure from OPEC+ production increases and a global growth forecast downgrade by the OECD.
Bond Market
US Treasuries: Yields rose this week due to concerns over the fiscal deficit and Trump’s policies. The Federal Reserve’s cautious stance on rate cuts, influenced by mixed economic data, kept yields elevated.
China Bond: Yields declined slightly as the central bank maintained liquidity through large-scale reverse repos. In the medium to long term, moderately loose monetary policy is expected to keep short-term interest rates low, but vigilance is needed for potential liquidity disruptions from accelerated government bond issuance.
Foreign Exchange Market
US Dollar Index: The index declined this week despite strong job data, as mixed economic indicators and the Federal Reserve’s cautious stance on rate cuts influenced the dollar’s value. In the medium to long term, the dollar may remain weak.
USD/JPY: The exchange rate fluctuated upward this week. Japan’s moderate economic recovery and the Bank of Japan’s cautious approach to rate hikes influenced the yen’s value. In the medium to long term, the yen may face pressure from the Federal Reserve’s expected rate cuts and the Bank of Japan’s gradual policy adjustments.
Equity Market: Concerns over trade frictions and geopolitical conflicts have heightened market risk aversion. The US stock market faces multiple pressures, including Trump’s tariff policy, the Federal Reserve’s policy dilemma, and overvalued tech stocks. The European Central Bank’s rate cuts have supported European stocks, while the A-share market has been resilient due to policy expectations.
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