Overseas market news: The Federal Reserve indicated on Thursday that Federal Reserve Chairman Powell will deliver a speech at the Jackson Hole Economic Policy Symposium, hosted by the Federal Reserve Bank of Kansas City, next Friday. It is anticipated that Powell will address the economic outlook, continuing the tradition of the Fed Chair delivering a keynote speech at the three-day annual conference. The Federal Reserve is currently at an inflection point regarding interest rate changes. Over a year has passed since the last interest rate hike in July of last year, during which the Fed has chosen to remain on hold, maintaining the U.S. benchmark interest rate at a high level of 5.25% to 5.5%. With the U.S. non-farm employment data significantly lower than expected and inflation expectations further receding, the pressure on the Fed to cut rates is mounting. Investors are hoping to glean clues from Powell's speech. The market widely expects the Fed to lower the benchmark interest rate at the interest rate meeting on September 17-18. However, there is some disagreement on the extent of the cut. Most economists predict that the U.S. central bank will cut rates by 25 basis points in September, but a few institutions, including Citigroup and JPMorgan Chase, anticipate a cut of possibly 50 basis points.
Should the Fed cut interest rates, it would impact global capital markets and significantly boost non-U.S. currencies. The U.S. dollar has already begun to retreat from its highs, with non-U.S. currencies appreciating, particularly the Chinese yuan showing noticeable signs of appreciation. If the Fed initiates a rate-cutting process in September, it would further promote the appreciation of non-U.S. currencies. Coupled with domestic policies aimed at stabilizing economic growth gradually taking effect in the second half of the year, it is expected that the yuan will have considerable room for appreciation next year. The expectation of yuan appreciation is a positive development, as it will attract foreign capital inflows into yuan-denominated assets, leading to capital inflows that could drive a rebound in the valuation of severely undervalued Chinese quality assets. The U.S. recently announced retail data for July, which comprehensively exceeded expectations, with the overall retail sales growth rate hitting a new high in a year and a half. This data is crucial for assessing the current state and prospects of the U.S. economy and is one of the better economic data releases in the U.S. recently. Previously, many investors were concerned that the decline in U.S. non-farm business data led to a rise in unemployment rates, triggering Sam's Rule, which may indicate an impending U.S. economic recession.
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Sam's Rule is a relatively new economic indicator used to predict the onset of economic recessions. It was proposed by former Federal Reserve economist Claudia Sam in 2019. The rule is defined as the economy likely being in recession when the three-month moving average of the national unemployment rate rises by 0.5 percentage points or more from its lowest point in the previous 12 months. The rule aims to provide an early warning signal for economic recessions and may reflect them faster than traditional indicators. The advantage of this indicator is its simplicity in calculation and understanding, based on easily accessible unemployment rate data, and it has been historically validated multiple times, especially in identifying economic recessions with high accuracy. The data it refers to is real-time, unlike some other indicators that may have lags. Since 1970, Sam's Rule has successfully identified the start of economic recessions earlier than official declarations. However, like any single indicator, it is not absolutely reliable and should be used in conjunction with other economic indicators. Economic shocks may prevent immediate capture of rapid changes.
Although not an official indicator used by government agencies, Sam's Rule has garnered the attention of economists and is increasingly mentioned in economic discussions and analyses. Some economists suggest using Sam's Rule as a trigger for automatic fiscal stabilizers, such as stimulus payments, to help mitigate the impact of economic downturns. Sam's Rule represents an innovative method for predicting economic recessions, focusing on changes in unemployment rates as a key indicator of economic health. Its simplicity and historical accuracy make it a valuable tool in the toolbox of economists assessing economic conditions. The proposer of Sam's Rule, Sam, recently stated that despite recent economic data being weaker than expected, the Fed does not need to urgently cut rates. However, he said there are ample reasons for a 50 basis point rate cut, and the Fed needs to exit its restrictive monetary policy. Although the Fed intends to use interest rates to exert downward pressure on the U.S. economy, Sam warned that the Fed needs to remain vigilant and not wait too long to cut rates, as interest rate changes take a long time to affect the economy.
In the past period, European, American, and Japanese stock markets experienced a high retreat and a sharp decline, while recently there has been a certain rebound, especially with the Asia-Pacific stock markets generally rising on Friday, with the Japanese stock market surging by 1,000 points. When the market is divided, it is often a time when market volatility increases. Last week, the Bank of Japan made an emergency statement that it would not take rate hike measures during the decline of the Japanese stock market, which attracted significant fluctuations in foreign capital. The number of global investors selling Japanese investment portfolios last week set a new record, but then they bought again, and global funds ultimately became net buyers of the Japanese stock market last week. After the Nikkei 225 index fell by 12%, it rebounded by 10% the next day, and has recently shown a pattern of repeated rebounds. When the market shows signs of peaking, it is often a time of intense volatility. Warren Buffett often senses fear ahead of the market's greed and reduces his positions. In the second quarter, Berkshire Hathaway significantly reduced its holdings of nearly $90 billion in U.S. stocks, including about $80 billion in Apple, its largest holding, and $3.8 billion in Bank of America, among others. Buffett's significant reduction has led many prescient funds to start taking profits from U.S. stocks. AI concept stocks have also experienced significant fluctuations recently. The impact of AI on our work and life is undoubtedly significant, but is there a suspicion of speculation in this wave of AI? There is already some disagreement. U.S. companies have sparked a wave of share buybacks, driving the rebound in U.S. stocks. The global capital market is facing significant changes, and we wait and see.
From the recent performance of European, American, and Japanese stock markets, the risk of peaking is increasing. Although we do not know when it will peak and fall, the risk of investment is accumulating at this time. A-shares and Hong Kong stocks are still in a historical low area, with many high-quality stocks being severely undervalued. Under the continuous increase in policies to stabilize economic growth, economic recovery expectations, and the appreciation expectations of the yuan, international capital is also expected to flow into A-shares and Hong Kong stocks for layout. From a capital perspective, the reaction of Hong Kong stocks is more intense. Recently, the Hong Kong stock market has seen a good rebound, and we also look forward to the A-share market stabilizing and rebounding as soon as possible to create a profit effect. If the national team can increase its market entry efforts and completely reverse the downturn, funds on the sidelines will end their wait-and-see attitude and enter the stock market. The formation of a bull market in the stock market will create a strong wealth effect, which will be an important aspect of promoting the recovery of consumption.
