What choices will the market make after the interest rate cut? There are some things you must know!

The current market is characterized by a high level of uncertainty!

A 25-basis-point rate cut might be perceived by investors as too gradual, potentially triggering a pullback, but could also signal that the economy remains under control; a 50-basis-point cut, while injecting liquidity, might exacerbate recession fears and spark selloffs. Consequently, the U.S. stock market may exhibit intense tug-of-war between bulls and bears in the short term, with volatile consolidation expected.

In my personal view, September will likely see a 25-basis-point rate cut as a starting point, contingent primarily on political factors. It is worth noting the balance of power within the Federal Reserve among Trump-aligned officials. Research simulating Fed decision-making indicates that political pressure may influence interest rate decisions, sparking discussions about the independence of monetary policy. If the Trump-aligned faction gains the upper hand, it is possible that a 25-basis-point cut could occur by year-end (adopting a preemptive approach to avoid causing market panic), accompanied by three consecutive rapid rate cuts.

Key Driving Events
The U.S. August CPI increased by 0.4% month-over-month (expected +0.3%), core CPI year-over-year remained at 3.1%, and the PPI unexpectedly fell by 0.1% month-over-month, indicating a slowdown in goods inflation but continued pressure on service prices.
Initial jobless claims for the week surged to 263,000 (expected 235,000), but the unemployment rate remains historically low, intensifying debates over 'stagflation'.

Notably, interest rate swap contracts indicate that there could be cumulative rate cuts of 150 basis points over the next year. Additionally, this morning, Milian, a Fed governor candidate nominated by Trump, secured enough votes for confirmation in the U.S. Senate, enabling him to join the other 11 voting members in the Fed’s rate decision this week. The FOMC is currently the key determinant of market direction, and the only variable that could influence the FOMC is Trump's political maneuvers. Therefore, we need to closely monitor the movements of the Trump-aligned faction within the Fed, as they will affect the intensity of future rate cuts.

Meanwhile, regarding the recent continuous rise in Hong Kong’s market, the Hong Kong stock market is currently dominated by southbound capital and remains within an upward channel, with the trend yet unbroken. In the short term, at the high point of the volatility range and near the upper Bollinger Band, there may be a pullback. In the medium term, it still remains within the upward channel. In the long term, the performance of mainland China’s A-share market will influence the movement of southbound capital and the inflow of active foreign capital. However, the inflow of passive foreign capital reflects optimism about Hong Kong stocks’ index performance for the year.