Guotai Junan: The Federal Reserve "adds" interest rate cuts, but why doesn't the market buy it?

Guotai Junan released a research report stating that the Fed cut interest rates as scheduled, with a rate cut of 50 basis points. Before this rate decision, the market had sharply differing views on whether the Fed would cut rates by 25 basis points or 50 basis points, and this divergence was not reconciled until just before the rate decision. About half an hour before the decision was announced, reports from the market indicated that the rate cut would be 50 basis points. However, Powell dampened dovish sentiment in the subsequent press conference, stating that no fixed rate path had been set and decisions would be made meeting by meeting. Furthermore, if the economy remains robust and inflation remains stubborn, policy adjustments may proceed more slowly. The brokerage pointed out that alongside the strengthening Japanese yen, gold and the Renminbi exchange rate have also seen increases. The price of gold has reached record highs, greatly enhancing the potential for gold as an independent asset class. The Renminbi exchange rate against the dollar has also risen to yearly highs, breaking the 7.10 mark. In this scenario, the market may also need to pay attention to the future performance of Hong Kong stocks. From a seasonal perspective, the Hang Seng Index has shown impressive performance from November to January over the past 5 years, almost in sync with the Renminbi's seasonal performance. Guotai Junan's main points are as follows: - The Fed cut interest rates as scheduled, by 50 basis points. - Before this rate decision, there was significant market divergence on the rate cut, with views split between a 25 basis point cut or a 50 basis point cut. This divide remained until just before the rate decision, when reports from the Wall Street Journal indicated that the cut would be 50 basis points, seemingly easing investors' concerns. Following the announcement, the stock market saw a rapid rise, while the US dollar and bond yields quickly declined. However, Powell's press conference afterwards dampened dovish sentiment, emphasizing that no fixed rate path had been set and decisions would be made gradually meeting by meeting. Additionally, if the economy remains strong and inflation remains stubborn, policy adjustments may proceed more slowly.