The Jackson Hole meeting on August 22 is a barometer for global financial markets; a single word from the Federal Reserve Chairman could likely change the flow of global funds, requiring a revaluation of stocks, exchange rates, and commodities. This meeting is significant because it often serves as a precursor to policy turning points, as last year's case vividly illustrates.
In August 2024, Powell signaled easing at the conference, and less than a month later, on September 18, the Federal Reserve indeed cut rates by 25 basis points, as the market had already sensed the wind and completed its pricing early. This year's situation is even more delicate; although U.S. inflation has fallen from a high of 8%, core inflation remains above 3%, economic growth is nearly zero, and employment has started to weaken marginally, the market has almost firmly concluded that a rate cut in September is a certainty, with a probability exceeding 90%.
However, the issue is that the Federal Reserve may not be willing to make a statement so quickly. Powell's speech could have three possible outcomes:
· First, the most likely outcome is a vague dovish stance, acknowledging that policies are tight but stressing that decisions will depend on data. This would relieve the market but also leave some suspense.
· Second, a hawkish stance could mean holding steady, emphasizing that inflation remains stubborn, without giving any hints of easing. The market will immediately interpret this as no interest rate cuts leading to a correction in risk assets.
· Third, directly releasing signals of interest rate cuts would lead the market to celebrate rapidly, but the cost would be seen as the Federal Reserve being subjected to political pressure.
For investors in Hong Kong stocks and A-shares, this meeting is not just an American affair; the dovish signals imply an improvement in global liquidity. Interest rate-sensitive sectors, technology cycles, pharmaceuticals, and Hong Kong stocks are likely to benefit the most. However, if the tone is hawkish, the pressure of dollar capital returning will first impact Hong Kong stocks, and the risk appetite for A-shares will also contract accordingly. The key is not to get caught in buying expectations and selling realities.
Last year's market movements have already indicated that the market had priced in the benefits of interest rate cuts ahead of time, and when they actually materialized, volatility increased. This year, if Powell does not adopt a sufficiently dovish tone, even a slight hint could trigger significant fluctuations. The Jackson Hole meeting is like a gust of wind that can sway market volatility and alter liquidity expectations, but the true direction of wealth does not solely reside in a single speech; it lies in whether you can maintain your rhythm amidst the noise and find the medium- to long-term value direction.