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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Official Website]: Powell's hawkish statements cannot hide the dovish turn. Will the 'make up interest rate cut' drama repeat in September?" Hope it will be helpful to you! The original content is as follows:
On Wednesday, due to strong US economic data and Powell insisting on a wait-and-see position, the US dollar index rose for the fifth consecutive trading day, approaching the 100 integer mark. As of now, the US dollar is quoted at 99.69.
1. Tariffs
① Trump signed an executive order to suspend the minimum tax exemption for low-value goods.
②Trump: The August 1 deadline will not be extended. Starting August 1, India will pay a 25% tariff and will be fined for purchasing arms and energy from Russia.
③Trump announced that a 50% tariff will be imposed on imported semi-finished copper and other products starting from August 1, but the measure does not include copper ore, cathode copper, etc., and US copper plummeted by 18%.
⑤ Trump signed an executive order to impose a 40% tariff on Brazil, bringing the total tariff to 50%, and exempting aircraft energy and other fields, which will take effect in 7 days.
⑥Trump: A stofoco.comprehensive trade agreement with South Korea will impose a 15% tariff on South Korea, and South Korea will pay US$350 billion to invest and purchase energy products worth US$100 billion.
⑦ Canadian Prime Minister: Trade negotiations with the United States may not be ended by August 1.
⑧ French Finance Minister: Continue to negotiate with the United States to obtain tariff exemptions for wine and spirits.
2. Fed interest rate resolution trends
① Keep the interest rate unchanged between 4.25% and 4.50%, and directors Waller and Bowman voted against it and advocated a rate cut.
②Powell avoided giving guidance on the September interest rate cut, saying that the current monetary policy stance is in a favorable position, emphasizing that relying on data and inflation targets are farther than employment, and reasonably speculation is that the impact of tariffs on inflation is short-lived.
③Trump spoke out the moment before the Fed's resolution was announced: I heard that the Fed will cut interest rates in September.
④ The market's bet on the Fed's annual interest rate cuts by 8BP to 36BP.
The U.S. economy grew by 3% in the second quarter, exceeding expectations of 2.4%, and Trump once again urged the Federal Reserve to cut interest rates.
U.S. ADP employment rose by 104,000 in July, exceeding the expected 75,000, and rebounded to its highest growth level since March.
The US Treasury Department's quarterly refinancing report: The scale of quarterly refinancing bond issuance is set at $125 billion, in line with expectations.
Meta and Microsoft's financial reports were impressive, and the US stock market rose sharply after the market closed.
The White House released a digital asset report, and there is no substantial update to the Bitcoin reserve plan.
At the monetary policy press conference, Federal Reserve Chairman Powell reiterated that he was not in a hurry to cut interest rates. This remark suppressed the market's expectations for a loose policy in September. Although gold prices initially held key support of $3,300 after the interest rate resolution was announced, Powell's lack of forward-looking guidance quickly triggered a wave of selling pressure, causing gold to eventually close 1.55% on the day. Powell stressed that important economic data still need to be evaluated before the September policy meeting. He made it clear that no decision has been made on the September meeting yet.
While Powell avoids providing clear guidance for the second half of the year, some analysts believe he has sent a subtle signal to investors. Northlight Asset Management chief investment officer Chris Zaccarelli said that while the Fed's statement didn't give much stofoco.comrmation to investors, Chairman Powell revealed some hints at a press conference that it was more likely to cut interest rates at the next meeting in September. He noted that Powell mentioned that most long-term inflation expectations remain consistent with the 2% target and suggested that the inflationary impact of tariffs could be "short-term", reflecting a one-time price level adjustment.
LPLFinancial chief economist Jeffrey Roach also expects the Fed to start cutting interest rates after the summer. He said the interest rate setting stofoco.committee was ready for action at its next meeting. If the economic situation worsens, the stofoco.commission could cut interest rates by 25BP in September.
Federal Chairman Powell was very tough today. He's not tired of itIt has irritated the reason not to cut interest rates, repeatedly described the US economy as operating under full employment, and warned consumers that prices will rise. Just as Waller and Bowman’s motives will be questioned, Powell seems to have overdoed, in an effort to counter Trump’s desire to cut interest rates. In any case, the possibility of a rate cut in September has dropped from 60% before the resolution to below 50%.
Matias Sheber, head of the multi-asset team, said that the US fiscal policy is still loose, and the passage of Trump's "Beautiful Great Act" will undoubtedly further add fuel to the fire. It is expected that the bill can contribute up to 1 percentage point to US economic growth in the first year of implementation, and the marginal effect will gradually decrease after that. From a macro perspective, the US economy is still stable: the unemployment rate remains stable, real wages continue to grow, and corporate profit performance is also resilient. Unless there is a major job market impact, or the outside world is concerned about the independence of the Federal Reserve again, we expect the Federal Reserve to maintain a wait-and-see position and may cut interest rates once this year. The future policy direction will largely depend on the trade-off between inflation and growth.
When talking about financial imbalances, our financial over-monitoring indicators show limited debt risks in the household sector, two concerns are raised:
The first is a long-standing concern: the savings rate is too low. Although concerns about the economic outlook caused by the trade war may prompt households to reduce consumption and increase savings, our model still shows that the current lower savings rate is consistent with its fundamental drivers, most importantly, with higher levels of household wealth.
The second concern is whether the high consumer credit default rate reflects financial vulnerability. We have less concerns about this, as the rise in default rates is mainly due to unintentional increased risky lending practices rather than deteriorating household financial situation. In addition, the default rate has now stabilized.
In terms of corporate debt, as interest rates rise in the past few years, the market has also paid more attention to the risk of peak corporate debt maturity. Although corporate interest expenses have risen significantly in recent years, their impact is still limited at present. By contrast, the issue of fiscal sustainability in the public sector remains a serious and growing concern. The longer the time to solve the problem, the greater the amount of fiscal rectification required in the future. The core risk is that if the scale of debt and the interest expenses it brings continue to expand, it is necessary to maintain a large and sustained fiscal surplus just to stabilize the debt-to-GDP ratio, which is almost difficult to achieve in the long run. Although it is difficult to tell when the market will show more serious concerns about this issue, once such concerns rise, it may push up interest rates and lead to tightening of overall financial conditions.
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