Global Market Reactions as Fed Prepares for Rate Cuts Amid Rising Geopolitical Tensions

1

Federal Reserve Chair Jerome Powell clearly stated that interest rate cuts will begin next month, causing bond traders to focus on the size of the initial cut and the future rate cut trajectory.Powell emphasized at the annual meeting in Wyoming that it is time to lower the benchmark interest rate, and the pace of future rate cuts will depend on economic data, changes in the outlook, and risk balance. Although he did not specify the rate cut size, the market expects a significant rate cut in September. However, the escalation of conflict in the Middle East could affect demand for safe-haven assets, altering market strategies. Additionally, the devaluation of the dollar has reactivated carry trades, with investors borrowing dollars to invest in high-yield currencies and assets.

Analysis:

Impact on FX:Potential weakening of USD as rate cuts are expected.

FX Pair:USD/JPY, EUR/USD

Impact on Shares:Positive for rate-sensitive stocks like real estate and utilities.

Companies:U.S. Treasury securities, real estate investment trusts (REITs).

2

Asia-Pacific stock markets rose for the third consecutive day as investors expected the prospect of Federal Reserve rate cuts to boost market sentiment.Australian and Hong Kong stock markets rose (as Hong Kong's rates are pegged to the Fed), while the yen's strength led to a decline in Japanese stocks. Fed Chair Powell hinted at the start of monetary easing at the Jackson Hole meeting, which pushed up the safe-haven yen. Meanwhile, with tensions in the Middle East escalating, safe-haven demand also influenced currency markets. The People's Bank of China kept its one-year policy loan rate unchanged, reflecting caution in supporting economic growth.

Analysis:

Impact on FX:Strengthening of JPY due to safe-haven demand.

FX Pair:USD/JPY, AUD/USD

Impact on Shares:Positive for Asian stocks, especially in Australia and Hong Kong.

Companies:Exporters in Japan, Chinese financial institutions.

3

Pavel Durov, CEO and co-founder of Telegram, was detained by French authorities at Paris airport, sparking widespread attention.Durov was detained on suspicion of failing to take measures to prevent Telegram from being used for criminal activities. Telegram questioned the detention and stated that it complies with European laws, including the Digital Services Act. Durov's detention has been extended for 24 hours, and the Russian embassy in Paris has requested explanations from French authorities and protection of Durov's rights. Telegram is hopeful for a swift resolution of the situation.

Analysis:

Impact on FX:Limited direct impact.

FX Pair:EUR/USD

Impact on Shares:Potential negative sentiment for technology and communication stocks.

Companies:Telegram, European tech companies.

4

The Singapore dollar reached its highest level against the U.S. dollar in nearly a decade due to the relatively hawkish stance of Singapore's monetary policy.The Monetary Authority of Singapore maintained its appreciation bias for the SGD during its July meeting to curb inflation. Meanwhile, Federal Reserve Chair Powell all but confirmed that the U.S. will start cutting rates next month, leading to a weaker dollar. Although the SGD has been strong recently, analysts expect its further appreciation against the USD may be limited due to the effective control of fluctuations by the Monetary Authority of Singapore.

Analysis:

Impact on FX:Strengthening of SGD against USD.

FX Pair:SGD/USD

Impact on Shares:Positive for sectors benefiting from a strong SGD, like importers.

Companies:Singaporean importers, retail companies.

5

Abu Dhabi is experiencing a massive construction boom aimed at attracting wealthy foreigners to invest and work through cultural and tourism projects.Projects like the Guggenheim Museum are part of over $10 billion efforts to boost Abu Dhabi's tourism and cultural activities. The city is also building luxury residential areas to attract wealthy buyers from the UK, India, Spain, and other countries. However, climate change and geopolitical instability in the Middle East could pose challenges to these grand plans. Abu Dhabi hopes to position itself as a global financial and cultural center, not just a regional hub.

Analysis:

Impact on FX:Limited direct impact.

FX Pair:USD/AED

Impact on Shares:Positive for construction and real estate sectors.

Companies:Construction firms involved in Abu Dhabi projects, real estate developers.

6

China's central bank decided to keep the one-year Medium-Term Lending Facility (MLF) rate unchanged at 2.3%, after lowering the rate by 20 basis points in July.This decision aims to curb excessive enthusiasm in the bond market and prevent the accumulation of financial risks. Meanwhile, the central bank withdrew 101 billion yuan from the banking system this month through maturing loans. This reflects the central bank's cautious approach to managing bond market volatility while supporting economic growth.

Analysis:

Impact on FX:Limited direct impact.

FX Pair:CNY/USD

Impact on Shares:Negative for bond market-sensitive stocks.

Companies:Chinese financial institutions, bond market-related companies.

7

Indian startups are heavily developing AI voice robots to reach more users through voice technology, especially those unfamiliar with English.Companies like Sarvam AI have launched software that can interact with customers in multiple Indian languages at a low cost, charging just one rupee per minute. These voice robots have been widely adopted in India's banking, insurance, and railway systems to provide services and automate tasks. Compared to text-based chatbots, voice robots are considered more intuitive and easier to use, especially in a linguistically complex and diverse market. Despite global security concerns about AI voice technology, Indian startups are confident in its potential and are looking to expand into international markets like the Middle East and Japan.

Analysis:

Impact on FX:Limited direct impact.

FX Pair:INR/USD

Impact on Shares:Positive for Indian AI and tech sectors.

Companies:Sarvam AI, Indian tech startups.

8

Nestlé suddenly replaced its CEO, firing its first external CEO, Mark Schneider, and appointing senior executive Laurent Freixe as his successor.Schneider, who took over in 2017, led Nestlé's shift towards high-growth markets and made significant progress in the coffee and pet care sectors. However, recent issues with the acquisition of a peanut allergy treatment and operational missteps led to problems. Schneider's departure has raised concerns about Nestlé's future performance, particularly whether it can continue to meet sales and profit targets. While Freixe is well-versed in the company, he lacks Schneider's dynamism, raising the risk of a performance decline. Investors are cautious about this leadership change.

Analysis:

Impact on FX:Limited direct impact.

FX Pair:CHF/USD

Impact on Shares:Negative sentiment around Nestlé's stock due to leadership change.

Companies:Nestlé (NESN.SW)

9

Gold prices neared record highs after Federal Reserve Chair Jerome Powell confirmed rate cuts will begin next month.Powell indicated in his Jackson Hole speech that the Fed is ready to shift to a more accommodative policy, pushing gold up 1.1% last Friday. As gold does not yield interest, lower borrowing costs typically increase its appeal. Gold prices have risen more than 20% this year, driven by optimism about the Fed's policy shift, geopolitical risks, and uncertainty ahead of the U.S. presidential election. Additionally, buying demand from central banks and Asian consumers has fueled this rally.

Analysis:

Impact on FX:Potential weakening of USD due to rate cuts.

FX Pair:XAU/USD

Impact on Shares:Positive for gold mining companies.

Companies:Gold mining companies, precious metals ETFs.

10

Despite the Reserve Bank of Australia's (RBA) tough stance, the market doubts its commitment to tightening.Investors believe that with New Zealand and the Bank of England already easing policies, the RBA may also soften its monetary stance.

Analysis:

Impact on FX:Potential weakening of AUD if the market expects policy easing.

FX Pair:AUD/USD

Impact on Shares:Negative for interest rate-sensitive sectors.

Companies:Australian banks, real estate firms.