The Soul Question of Global Markets: Does the Federal Reserve cut interest rates in the second half of the year?

 The Soul Question of Global Markets: Does the Federal Reserve cut interest rates in the second half of the year?

The markets expectations for the Feds rate cut have shifted since Fridays data were released, with the possibility of 50 basis points being ruled out, but the Federal Reserve Watch of Chicago Merchants still shows that the markets expectation of a 25 basis point cut by the Fed on July 31 is almost nailed down.

(Chicago Merchants Federal Reserve Watch (FEDWatch) Interest Rate Reduction Expectations July 31)

Now the market holds its breath and waits for the upcoming testimony of Federal Reserve Chairman Powell (July 10-11, local time). If Powell releases the hawk tone then, the market may decide to re-examine the situation of interest rate cuts. If the market decides to exclude the possibility of recession cuts, it will have a negative impact on all assets. Because the recent rise in Treasury bonds and stocks is based on the Feds expectations of interest rate cuts. The data gap is good news for asset prices. On the contrary, equity and bond prices began to fluctuate as the market reexamined the direction of Fed policy with strong non-agricultural data.

Its not time to defend.

From the perspective of asset allocation as a whole, I still recommend that investors have both equity and debt. Overall, we believe that in the medium and long term, economic growth will remain at a stable level. For US stocks, although the market expects only 3% earnings growth, this is a relatively conservative earnings growth forecast for us, that is to say, the chance to exceed this forecast is relatively high, which will continue to support the performance of US stocks. In addition, we see that American companies are buying back their own stocks at a similar rate as last year, which is also the focus of continuing to support American stocks. Xu Changtai said.

Profit growth in the Asia-Pacific region is 5% this year, he said, but we cant just look at the broader index. We need to look for individual industry opportunities, even individual enterprises.

Wang Xinjie, Director of Investment Strategies at Standard Chartered Bank (China) Wealth Management Department, previously reported on the 21st century economy that the trend of the U.S. stock market in the second half of the year could refer to the situation in 1998. If the Federal Reserve cut interest rates in the second half of the year as expected, it could postpone the coming of the economic recession and boost risky assets to a certain extent. Performance, at that time, 12 months after the Federal Reserves first interest rate cut, risky assets generally rose, and the economy officially entered a recession three years after the Federal Reserves first interest rate cut.

How to match bonds? Xu Changtai pointed out that as risk-free interest rates remain low, European and American high-yield bonds, emerging markets and Asian markets can provide investors with returns. Given the current economic environment is not cold, not hot, the risk of default is not high. But he also pointed out that in the future, with the possibility of economic recession increasing, it is necessary to convert to developed market treasury bonds and other assets. I believe that in the next two to three years, from the perspective of economic performance, the year 2019 and 2020 will be relatively stable and positive. When the risk of economic recession rises in 2021 and 2022, investors can consider from the right. Fang gradually transfers these assets. Xu Changtai said.

What are the opportunities for A shares in the second half of the year?

In the first half of the year, the consumption sector of A shares showed a prominent performance. The consumption sector had a good market in the first half, resulting in a consequence that valuation has been rising and rising to a relatively high position. The current valuation level, may continue to add warehouses, its risk will be a little larger. In contrast, other industries have relatively low valuations, but they lack an upward catalyst. When trade frictions ease and policy efficiency comes out, in this case, the performance of technology stocks may lag behind the market. Zhu Chaoping, a market strategist at Morgan Capital Management, said.

Zhu Chaoping believes that the consumer sector is neutral, investors may tend to hold stable for a long time, as a cornerstone of the portfolio, will not be so quick to reduce warehouses. But after that, when the market really gets up, it may lag behind the market and not be as outstanding and excellent as it was in the first half of the year.

Source: Responsible Editor of Economic Reporting in the 21st Century: Wang Xiaowu_NF