Market Sentiment on Interest Rate Cuts

1. Overall Optimism

Recently, weak non-farm data and moderate inflation have led the market to generally believe that the Federal Reserve will cut interest rates in September, with a probability exceeding 80%. Some even suggest a potential one-time cut of 50 basis points. Investor risk appetite has clearly rebounded:

U.S. stocks, including the Dow Jones and S&P futures, have risen;

Bitcoin has reached an all-time high;

The VIX, or volatility index, has dropped to a year-low.

2. Boost in Investor Confidence

Strengthened expectations for rate cuts have driven funds towards risk assets, while the U.S. dollar index has weakened and gold prices have risen, indicating the market is re-evaluating the possibility of a 'loose environment'.

3. Potential Concerns

Although the market is optimistic, the bond market curve shows a phenomenon of falling short-term yields and elevated long-term yields, reflecting concerns over fiscal deficits and long-term inflation. Some viewpoints warn that the world may enter an era of 'fiscal dominance', where central banks are forced to maintain low interest rates and their independence is constrained.

4. Key Milestones Ahead

The market's next focal point is Powell's speech at Jackson Hole. Historical experience shows that his statements often trigger significant fluctuations in the dollar, yields, and stock markets, potentially marking a turning point in sentiment.