Most investors believe that all of the Fed’s activity for the rest of the year is already priced in.
It is wise to remain highly alert, as a small shock can quickly change the situation.
After the Chinese stock market closed, the global market ushered in changes.
Federal Reserve Chairman Powell gave a speech that broke the cold water on the market - there is no rush to cut interest rates quickly - these words will be like a mountain pressing down on the market, and the market will feel it more and more deeply in the future.
1. Key points of the speech (generally speaking, the message conveyed by the meeting was still adhered to):
· Rate cuts: There is no set path, and decisions will be made meeting by meeting. Rates will be lowered "over time" and there is no rush to cut rates quickly.
Economy: Our economy is generally strong, and there are no signs that a recession is more likely.
Employment: The labor market has cooled over the past year but remains solid. Further cooling of labor market conditions is not necessary to achieve 2 percent inflation.
Inflation: Further progress has been made towards a sustainable return to the 2% target
“If the economy performs as expected, that would imply two more rate cuts (of 25 basis points each) this year,” Powell said during the discussion he moderated.
Overall, Powell's remarks were not tough, but the phrase "no rush to cut interest rates quickly" triggered the market's sensitive nerves. Powell reminded people that some interest rate expectations in market pricing may have become a bit extreme.
After his speech, traders cut their bets on the size of the Fed's rate cuts, putting the probability of a 50 basis point cut in November at 35%, down from 53% on Friday.
2. Judging from the market's reaction, the trend of the US dollar, gold, and US Treasury bonds is closely related to Powell's speech, but the US stock market eventually closed higher (which is inconsistent with logic). In fact, after Powell's speech, the S&P index continued to fall for a while, but began to rise before the close, because the end-of-quarter activities helped the stock market (momentum trading and typical book-dressing activities will occur at the end of the quarter).
Since Powell's speech was close to the end of the global trading session, the market did not fully react. If gold and US stocks fall again today, it may be the beginning of a decline. For the Chinese market, these changes in overseas markets need special attention.
3. Next, the US September ISM manufacturing PMI, US August JOLTs job vacancies, ADP, September non-farm data will be released one after another, and the market will have a deeper understanding of Powell's speech. His speech also seems to be a spoiler of this Friday's non-farm data.
This week's changes have just begun.
