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The Fed's interest rate cut is already entering the countdown, the Bank of Japan continues to raise interest rates, "recession trading" and carry position liquidation have caused turmoil in global financial markets, and RMB assets are expected to become a "safe haven" for global funds.

By Liao Zongkui

The Federal Reserve announced at its July meeting that it would keep the benchmark interest rate unchanged. This is the first time the benchmark interest rate has remained high for a year since the last rate hike in July 2023. However, this may be the last time the Fed will "stand still", and the Fed's interest rate cut has entered the countdown.

The Fed’s statement deleted the statement “still paying close attention to inflation risks” and changed it to “paying attention to the risks faced by both employment and price missions”. The Fed’s policy focus is gradually shifting towards growth and employment, and the US unemployment rate rebounded to 4.3% in July, which will make the Fed’s interest rate cut closer and closer.

As the Fed enters the countdown to its rate cut, does it mean that the global market will enter a "rate cut trade"? Expectations often go ahead of reality. The market has already fully "gambled" on the Fed's rate cut; if the rate cut is forced by an economic slowdown, historical experience shows that the market will usually enter a "recession trade" first.

Since mid-July, global financial markets have begun to adjust. The Nasdaq index fell by nearly 10%, while the yen appreciated significantly, indicating that risk aversion is rising and carry trade liquidation is intensifying. The Nikkei index fell dramatically on August 5, falling by 12% that day. In less than a month, it has fallen by more than 25% from its previous high, entering a technical bear market.