Countdown to the Jackson Hole Annual Meeting! Global market sentiment is cautious, the US dollar is rising, and the 30-year Japanese government bond yield has reached a new high

As the global market holds its breath for Federal Reserve Chairman Jerome Powell's key annual speech, cautious sentiment prevails, and investor bets on an imminent rate cut by the Fed are cooling.

On Friday, the dollar index rose by 0.1%, while major European stock indices opened lower. Previously, the S&P 500 index had fallen for five consecutive trading days. The core of the market turmoil lies in the fact that the money market currently estimates the likelihood of a Fed rate cut in September has dropped from 90% a week ago to 70%, a shift that directly reflects the market's reassessment of the policy outlook.

All eyes are on the Fed's annual economic symposium in Jackson Hole, where Powell will speak at 10 PM Beijing time. Investors are eagerly searching for clear clues about whether the Fed will begin cutting rates next month, as previously widely expected by the market.

• Major European stock indices opened lower, with the German DAX30 index down 0.30%, the UK FTSE 100 index down 0.15%, the French CAC40 index down 0.19%, and the Euro Stoxx 50 index down 0.22%.
• The Nikkei 225 index closed up 0.1%, at 42633.29 points. The Tokyo Stock Exchange index rose by 0.6%. The Seoul Composite Index closed up 0.9%.
• The yield on Japan's 30-year government bonds rose to a new high of 3.21%. The yield on Japan's 30-year government bonds reached a historic high since its introduction in 1999.
• The dollar index rose by 0.1%.
• The euro fell by 0.2% to 1.1588 USD, and the yen fell by 0.2% to 148.63 against the dollar.
• The yield on the US 10-year government bonds remained largely unchanged at 4.33%.
• Bitcoin rose by 0.7% to 113234.76 USD.
• Spot gold fell by 0.2%, priced at 3330.77 USD/ounce.
• West Texas Intermediate crude oil remained largely unchanged.

Fed Officials' Hawkish Chorus Intensifies Uncertainty Over Policy Path

Before Powell's speech, several Fed policymakers have adopted a tough stance, collectively undermining market expectations for an immediate rate cut. Cleveland Fed President Beth Hammack clearly stated that she would not support easing policy if a decision had to be made tomorrow.

Atlanta Fed President Raphael Bostic reiterated that he still believes a single rate cut this year is appropriate. Kansas City Fed President Jeffrey Schmid emphasized that inflation risks currently outweigh the risks facing the labor market. Chicago Fed President Austan Goolsbee acknowledged that some recent inflation data has been better than expected, but he simultaneously warned that he hopes one of the "dangerous" data points is merely a temporary phenomenon. These statements collectively paint a hawkish picture, leading the market to begin questioning whether the Fed will meet its rate cut expectations.

The yield on Japan's 30-year government bonds rose to a new high of 3.21%. The yield on Japan's 30-year government bonds reached a historic high since its introduction in 1999

Mixed Economic Data Puts the Federal Reserve in a Dilemma

Complex economic data further exacerbates the Federal Reserve's decision-making dilemma. On one hand, the data shows an increase in initial jobless claims, adding new evidence that the labor market is slowing down. On the other hand, a Purchasing Managers' Index (PMI) measuring manufacturing activity has grown at the fastest pace since 2022, indicating economic resilience.

Bret Kenwell, an investment analyst at eToro, pointed out:

"The Federal Reserve is in a tough spot, as rising inflation and a slowing labor market increase pressure for interest rate cuts—yet the trends of these two indicators are contrary to the Fed's dual mandate."

Market Expectations May Be Too Optimistic, Analysts Warn of Hawkish Surprise Risks

Some market observers believe that investors may be overly optimistic about Powell's dovish stance. Rajeev De Mello, Chief Investment Officer at Gama Asset Management, stated:

"Before Chairman Powell's speech, the market seems to have excessive hopes for a dovish shift. We expect the Federal Reserve to maintain a cautious, data-driven stance."

Alex Loo, a macro strategist at Toronto-Dominion Bank in Singapore, expressed a similar view, anticipating an "asymmetric reaction" to Powell's speech. He stated:

"If Powell maintains a neutral stance on the possibility of a rate cut in September, or even takes a hawkish stance, it could stimulate further appreciation of the dollar. This is because investors seem to have already priced in expectations for him to deliver dovish remarks."

On the individual stock level, shares of tech giant Nvidia fell about 1.9% in the alternative trading system Blue Ocean