In fact, although everyone is disappointed with the 25 basis point rate cut, it is basically in line with the market's previous expectations.
The main narrative on interest rate cuts in July and August revolved around interest rate cuts and a 25 basis point interest rate cut.
The current data just proves this point, so as expected, market trading sentiment has become a thing of the past, and what is needed now is effective "risk hedging" in the face of interest rate cuts.
Although the Fed data will definitely focus on a soft landing, investors are still subconsciously worried, but they are worried rather than panicked, so a pullback is inevitable.
I have always believed that a 25 basis point rate cut is the most appropriate, mainly because 25 basis points can be compared with the good data that has been produced. If positive, it can make the market anticipate the possibility of a soft landing, and if negative, it can also provide an opportunity for a landing.
As for the risk market, it is inevitable to stabilize the risk market during the interest rate cut phase. Therefore, releasing certain signals before the interest rate cut to allow the market to naturally correct may be the best result.
Especially when everyone's concerns about interest rate cuts are reflected in the trading market, the early pullback allows for better response measures after the interest rate cut. As long as there are no problems with the economy in the short term, the risk market will rebound after the interest rate cut due to negative news (concerns about economic risks after the interest rate cut).
If there is a problem with the economy, an early correction can also reduce the possibility of a sharp short-term decline or even panic.
What we need to pay attention to is that when the current sentiment and the decline caused by the 25 basis point rate cut are over, the market will rebound due to the stability of the short-term lack of bad data, especially after the rate cut, the rate cut route and the general election topic are superimposed, which may cause the risk market to slowly rise in the volatility.
The worst-case scenario plan can also allow the risk market to maintain a certain degree of stability, at least to avoid a collapse.
If we follow this route, the market will basically maintain a volatile downward trend until the interest rate cut is implemented next week. After the interest rate cut is implemented, it will depend on the situation to see whether it is the starting point of a short-term rebound.
However, I must say it, in the rebound after the interest rate cut, there must not be bad data that triggers the possibility of an economic recession, otherwise the short-term stability in sentiment after the interest rate cut may quickly collapse.
Again, during interest rate adjustments, the market is highly sensitive. It seems that liquidity attention is low, but once sensitive pessimistic signals are triggered, it will be troublesome.
Let’s just pray that no black swan appears in the near future.
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