Market Review: Fed Rate Cut and Global Economic Trends

Market Performance Overview

The Dollar Index experienced a volatile week, fluctuating between declines and gains. Initially, market expectations of a Fed rate cut pushed the index lower, reaching its lowest point in over ten weeks. Later, after the Fed cut the rate by 25 basis points as expected, Chairman Jerome Powell emphasized that this was a "risk management" measure, leading to a rapid rebound of the dollar and its recovery to the 97 level.

Spot gold was also affected by market volatility, initially rising before falling under the pressure of a stronger dollar. At the beginning of the week, expectations of a rate cut and safe-haven demand supported the rise in gold prices, reaching new record highs. However, following the Fed's decision and the rise of the dollar, gold declined significantly after reaching an all-time high of $3707.

Regarding other currencies, the British pound, euro, and Australian dollar all experienced similar fluctuations, rising initially and then falling later due to dollar movements. The euro against the dollar reached its highest level in four years, supported by the stability of monetary policy in the Eurozone, despite some indications of economic slowdown. The dollar is expected to rise slightly against the Japanese yen, but with significant volatility. The Bank of Japan kept interest rates unchanged, but two of its members voted in favor of raising them by 25 basis points.

International oil prices were affected by fluctuations in geopolitical concerns and supply and demand expectations. At the beginning of the week, Ukrainian attacks on Russian energy facilities and conflicts in the Middle East led to a rise in oil prices. However, with the release of the US inventory report showing negative data, and increasing expectations of weak demand and a surplus in supply, the prices of WTI and Brent crude oil turned to decline.

US stocks maintained their strength during the week, with the Dow Jones, S&P, and Nasdaq indices reaching new record highs. In the first half of the week, optimism about a rate cut and the strong performance of technology stocks led to a rise in the indices. However, after the Fed's decision, a clear divergence emerged in the market, with some chip manufacturing stocks experiencing a decline. Nvidia's announcement of a $5 billion investment in Intel contributed to the rise of the major indices and the small-cap index reaching its highest level in four years.

Insights from Investment Banks

• Fitch Ratings expects the Fed to focus on supporting employment, and therefore will tolerate higher levels of inflation in the short term.
• KPMG warned that continuing the Fed's current policy until next year could lead to excessive stimulation of the economy.
• BlackRock indicated that the Fed's decision to cut interest rates will depend on the extent to which the labor market continues to weaken.
• Mitsubishi UFJ affirmed that the Fed has not yet entered a phase of accelerating interest rate cuts.
• Nomura adjusted its forecast, adding expectations of a rate cut in October.
• Minsheng Macro pointed out that the Fed's rate cut marks the beginning of problems, and the risk of stagflation is increasing.
• Goldman Sachs continued its recommendation to overweight Chinese stocks listed in Hong Kong and Shanghai, noting that the "slow climb" of Chinese stocks has become more stable.
• Deutsche Bank raised its gold price forecasts for next year, expecting it to reach $4,000 per ounce.
• ING expects the euro-dollar exchange rate to reach 1.2 by the end of 2025 if the Fed cuts interest rates three times in a row.

Key Events of the Week

1. Fed Rate Cut: The Fed cut the interest rate by 25 basis points, reaching a range of 4.00% - 4.25%.
2. Lisa Cook Mortgage Controversy: President Trump asked the Supreme Court to allow him to dismiss Lisa Cook, a member of the Federal Reserve Board, due to allegations related to her mortgage.
3. Trump's Call to End Quarterly Reports: President Trump called on the US Securities and Exchange Commission (SEC) to allow companies to publish periodic information every six months instead of the current quarterly reports.
4. Democrat-Republican Standoff on Healthcare: The US Congress faces a risk of government shutdown due to disagreements over healthcare funding.
5. Improved US-India Trade Relations: The United States and India resumed a new round of bilateral trade negotiations after imposing a 50% tariff on Indian products.
6. Trump's Visit to Britain: President Trump paid a state visit to Britain, where US investments worth over £150 billion were announced.
7. Israeli Invasion of Gaza City: The Israeli army launched a ground operation in Gaza City, amid accusations from the United Nations of committing genocide.
8. Interest Rate Decisions from Central Banks: Several central banks around the world announced their interest rate decisions, including the Bank of Canada, the Bank of England, and the Bank of Japan.
9. Gold Theft in Hong Kong: A major theft occurred in Hong Kong, where a quantity of gold worth HK$50 million was stolen.
10. Nvidia's Investment in Intel: Nvidia announced a $5 billion investment in Intel to develop chips for computers and data centers.
11. Xiaomi Electric Car Recall: Xiaomi recalled over 110,000 SU7 electric cars due to problems with the Level 2 autonomous driving system.