On Monday, the global market is permeated with the unique atmosphere of policy-sensitive games: the dollar index is quietly rising, gold and US Treasuries have retreated after peaking, while US stocks are in a stalemate near historical highs. On the surface, the volatility of each asset seems limited, but the pattern of 'strong dollar, weak risk assets' is emerging, as if the market has captured policy signals in advance, quietly completing position resets before Fed Chairman Powell's speech at the Jackson Hole conference on Friday.
The 'subtle shift' in policy expectations.
The pricing logic for the Federal Reserve's rate cut in September is changing. Last week, the probability of a rate cut briefly reached 100%, but has since fallen to 80%—this adjustment is by no means random fluctuation, but rather an early digestion of expectations regarding 'Powell's hawkish tendencies.' The collective shift in institutional research reports carries significant signaling: HSBC clearly points out that the current rise in inflation pressure alongside slowing employment data suggests a 'quasi-stagflation' trend, making it difficult for Powell to release easing signals; Bank of America believes the Fed Chairman may choose to 'stay put' to avoid being tied down by market sentiment and locking in policy space; Citibank's shift from a slight short position to zero holdings also reveals investors' cautious attitude towards policy direction.
For Powell, the current market's 'pre-adaptation' has created a buffer for policy. Even if hawkish signals are released, it is unlikely to trigger extreme volatility—after all, the market has begun to absorb the expectations of 'tight policy.' The more likely path is that the market gradually digests the 'expectation gap' before the speech, avoiding liquidity shocks on the day of the speech. At this moment, the market is not anticipating a 'policy surprise,' but is actively hedging against the risk of 'expectations falling short.'
Powell's 'ambiguous strategy' and market game.
Historically, Powell's policy statements have been characterized by 'cautious omissions,' and this year's conference is likely to continue this logic. However, the recent divergence in labor market data (a slight rise in unemployment rate alongside resilient wage growth) will complicate his statements: he cannot completely deny easing expectations while needing to retain policy flexibility. Therefore, his speech may be filled with neutral expressions such as 'data dependence' and 'risk balance,' handing back the interpretation of policy to the market and creating an effect of 'stabilizing expectations amidst ambiguity.'
This market characteristic of 'adjusting before speaking' is essentially a normal game during periods of policy sensitivity. The reallocation actions of institutions and retail investors are actually seizing the opportunity in the process of 'guessing the Fed's thoughts'—after all, in a market cycle dominated by monetary policy, whoever captures the signals of expectation shifts first is better able to avoid volatility risks.
The 'key clues' for asset allocation.
The core contradiction in the current market has shifted from 'whether to cut rates' to 'the pace and magnitude of rate cuts.' To grasp the subsequent direction of assets, three key dimensions must be closely monitored:
First, the 'implicit logic' of policy statements. Powell's emphasis on 'inflation stickiness' and 'employment resilience' will be crucial—if he emphasizes the former, the dollar may strengthen further, putting pressure on risk assets; if he focuses on the latter, rate cut expectations may warm up, and gold and US stocks may see a recovery.
Second, the degree of market 'pre-pricing.' Historical data shows that about 60% of the market fluctuations triggered by the Jackson Hole conference are digested through reallocation before the conference. If the current appreciation of the dollar has reflected 'hawkish expectations,' then a 'bad news is fully priced in' reverse trend may occur on the day of the speech.
Third, the 'linkage signals' across assets. The degree of divergence between gold and US Treasury yields, and the strength switch between tech stocks and cyclical stocks in US equities can all serve as 'barometers' for policy expectations—when asset linkages point to 'tight policy,' one must be wary of the pullback pressure on high-valuation growth stocks.
In this game of 'expectations and policy', blindly guessing up or down is less effective than anchoring to logic: the Fed's core demand is always a 'balance between stable inflation and stable growth', and the market's reallocation actions are merely a dynamic adaptation to this balance. Once Powell's speech is delivered, the fog will eventually lift, but before that, 'respecting expectations and responding flexibly' remains the optimal strategy.
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